1. **Problem Statement:** We are given a partnership business split into two companies, P Ltd. and Q Ltd., with assets, liabilities, goodwill, debentures, shares issued, and formation expenses. We need to prepare: (a) Business purchase accounts (b) Partners' capital accounts (c) Bank account (d) Vendor's account (e) Statements of financial position for P Ltd. and Q Ltd. as at 31 October 2023 2. **Key Information and Rules:** - Partnership profit sharing ratio: R:M = 2:1 - Assets and liabilities transferred at book values - Goodwill paid: 300 million for oil (Q Ltd.), 240 million for export (P Ltd.) - Bank loan converted to debentures: 43.2 million in P Ltd., 28.8 million in Q Ltd. - Shares issued to partners and companies at Sh.20 each - P Ltd. raised 600 million 12% debentures, paid bank overdraft, incurred 21 million expenses - Formation expenses: P Ltd. 39 million, Q Ltd. 24 million 3. **(a) Business Purchase Accounts:** - P Ltd. took over non-current assets (1,149,000), cash (3,000), bank overdraft (-537,000), export trade receivables (384,000), export inventory (1,380,000), export trade payables (-924,000), goodwill 240,000 - Q Ltd. took over oil trade receivables (648,000), oil inventory (675,000), oil trade payables (-56,000), goodwill 300,000 Calculate net assets for P Ltd.: $$\text{Net assets}_P = 1,149,000 + 3,000 - 537,000 + 384,000 + 1,380,000 - 924,000 + 240,000 = 1,695,000$$ Calculate net assets for Q Ltd.: $$\text{Net assets}_Q = 648,000 + 675,000 - 56,000 + 300,000 = 1,567,000$$ 4. **(b) Partners' Capital Accounts:** - Total capital: R = 1,500,000, M = 900,000 - Current accounts: R = 78,000, M = 72,000 - Total capital + current: R = 1,578,000, M = 972,000 5. **(c) Bank Account:** - Bank loan 72,000 converted to debentures (43,200 P Ltd., 28,800 Q Ltd.) - Bank overdraft 537,000 paid off by P Ltd. using 600 million debentures less 21 million expenses 6. **(d) Vendor's Account:** - Goodwill paid: 240 million (export), 300 million (oil) 7. **(e) Statements of Financial Position as at 31 October 2023:** **P Ltd. Assets:** - Non-current assets: 1,149,000 - Cash: 3,000 - Trade receivables (export): 384,000 - Inventory (export): 1,380,000 **P Ltd. Liabilities:** - Bank overdraft: 0 (paid off) - Trade payables (export): 924,000 - Debentures: 43,200 (converted bank loan) + 600,000 (12% debentures) = 643,200 - Formation expenses: 39,000 **P Ltd. Equity:** - Share capital: R shares 71,250,000 + balance shares for M (calculated from total shares) - Goodwill: 240,000 **Q Ltd. Assets:** - Trade receivables (oil): 648,000 - Inventory (oil): 675,000 **Q Ltd. Liabilities:** - Trade payables (oil): 56,000 - Debentures: 28,800 (converted bank loan) - Formation expenses: 24,000 **Q Ltd. Equity:** - Share capital: M shares 47,760,000 + balance shares for R - Goodwill: 300,000 **Note:** Shares issued to E Ltd. and F Ltd. also included in equity. **Summary:** - Business purchase accounts show net assets taken over - Partners' capital accounts reflect capital and current accounts - Bank account shows loan conversion and overdraft payment - Vendor's account shows goodwill payments - Statements of financial position prepared with assets, liabilities, equity including debentures, shares, goodwill, and formation expenses This completes the solution for the first question.