Question

Ahmed Co. owes SAR 433,000 to Merando Inc. The debt is a 10-year, 11% note. Because Ahmed Co. is in financial trouble, Merando Inc. agrees to accept some property and cancel the entire debt. The property has a book value of SAR 150,000 and a fair value of SAR 230,000. Prepare the journal entry on Ahmed 's books for debt settlement.

* no hand writing or pics

* course name is Financial accounting

* be sure of answers

Answer 1

The loan of amount SAR 433,000 which has been paid in part through the transfer of property shall be fully disposed off in the books of Ahmed and the balance not paid shall be treated as part of the Equity for the enterprises.

Further, gain on revaluation shall also be recorded in the books of accounts

The Journal Entries for such are :

S.No.	Journal Entries in the books of Ahmed Co.
		Amount
	Particulars	Debit	Credit
1	Property A/c	80,000
	To Fair Value Adjustment		80,000
	(Being Value of property increase through revaluation using Fair Value Treatment)
2	10% Debt (Merando Inc.)	4,33,000
	To Property (Asset Transferred)		2,30,000
	To Equity A/c (Equity/Reserves)		2,03,000
	(Being Repayment of debt made using property and remaining balance not paid treated as part of equity or reserves and surplus)
3	Fair Value Adjustment Dr.	80,000
	To Statement of Profit & Loss A/c		80,000
	(Being Fair Value adjustment amount transferred to Statement of profit and loss account)