Saratoga Ltd was finding difficulty in raising finance for expansion. Kingfish Ltd was interested in achieving economies by marketing a wider range of products.

The following shows the financial positions of the companies as at 30 June 2010.

	Saratoga Ltd	Kingfish Ltd
Share capital
40 000 shares	$40 000
90 000		$90 000
Retained earnings	12 000	30 000
	52 000	120 000
Liabilities
Debentures secured	20 000
Accounts payable	42 000	12 000
Total equity and liabilities	$114 000	$132 000
Assets
Cash	$12 000	$24 000
Accounts receivable	18 000	20 000
Inventory (at cost)	43 000	47 000
Land and buildings (at cost)	23 000	19 000
Plant and machinery (at cost)	52 000	41 000
Accumulated depreciation on plant and machinery	(34 000)	(19 000)
Total assets	$114 000	$132 000

It was agreed that it would be mutually advantageous for Saratoga Ltd to specialise in manufacturing, and for marketing, purchasing and promotion to be handled by Kingfish Ltd. Accordingly, Kingfish Ltd sold part of their assets to Saratoga Ltd on 1 July 2010, the identifiable assets acquired having the following fair values:

Inventory $22 000 (cost $15 000)

Land and buildings $34 000 (carrying amount $10 000)

Plant and machinery $27 000 (which cost $38 000, and had accumulated depreciation of $18 000 at acquisition)

Assume the assets acquired constitute a business entity.

The acquisition was satisfied by the issue of an additional 40 000 ordinary shares (fully paid) in Saratoga Ltd.

Required:

1. If the fair value of the ordinary shares in Saratoga Ltd was $2.20 per share show the journal entries to record the above transactions in the records of Saratoga Ltd and Kingfish Ltd

2. Show the statement of financial position of Saratoga Ltd after the transactions.

3. If the value of the ordinary shares in Saratoga Ltd was $2.00 show the journal entries to record the transaction in the records of Saratoga Ltd.