At the time of dissolution of business the valuation is done for all assets and liabilities. All the liabilities are settled first from the assets amount and then the left over amount is for the owner…
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4. The incomes which are earned and not yet received are called accrued income. It will be shown in the credit side of Income Statement so bill invoice on 4th July, 17th July and 26th July (only 5000$ as 500$ was received cash) will be shown in the credit side of Income Statement and will be added to debtors account as it is credit invoice. 5. On 8th July, Amount received against above invoice adjustment will be as debtors are reduced by 3500 $ and cash will increase by the same amount. 6. As on 9th July, Advertising bill was produced but payment was made on 13th July so the amount of advertising expenses will be shown in debit side of Income Statement and will be deducted from cash account. 7. The office supplies were purchased on 14th July and payment was done 1 week later so the amount will be shown in office suppliers as it’s an assets and 21st July cash entry will be done against that. 8. The amount was withdraw on 20th July for personal use from bank, as no bank account statement is given the amount will be shown in liabilities side of balance sheet and will be deducted from drawings 9. The clock of 3800$ was sold at the price of 5500 $. So the profit on sale of clock will be credited in Income Statement. 10. The personal assistant was appointed on 14th July @ salary of 26000$ per annum and was paid fortnightly. The salary paid to him on 28th July will be debited in Income statement and will also be shown in Cash Account. 11. Following are the accounts: Cash account Date Particulars Amount Date Particulars Amount 1st July To balance B/fd 18500 9th July By Office supplier 750 2nd July To Capital A/c 150000 13th July By Advertising Exp 700 8th July To...
The buyer who is willing to buy the business will always see that what the value of the assets in the market is? The seller will also see that he is getting worth amount or not. The elements of cost which are included in the fair valuation of assets are its purchase price, any costs to be incurred for the movement or transportation and costs of dismantling and removing the asset from its original location (Picker 2009). And then the amount will be the final/minimal amount that the owner wants from buyer.
If the market value is more than the expected value the excess amount is considered as income of business and is distributed among owners. Thus, by using fair value method of valuation, Rick can have excess amount and will not run into losses as he plans to dissolve his business. On this ground, Fred’s suggestion to Rick is supported.
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