Amalgamation Journal Entries in the Books of Old

Amalgamation Journal Entries in the Books of Old firm & New firm

Step to be follow in the books of old firm:

Step-1 Assets are increase / Decrease (1) Increase in the value of assets: Assets account. . Dr. To Profit & Loss Adjustment Account…. (2) Decrease in the value of assets: Profit & Loss Adjustment Account…. Dr. To Assets account….

Step-2 Liabilities are increase or decrease (3) Increase in the value of liabilities: Profit & Loss Adjustment account…. Dr. To Liabilities account…. (4) Decrease in the value of liabilities: Liabilities account…. Dr. To Profit and Loss Adjustment account….

Step-3 Reserves are transfer to partners capital Account (5) Distribution of general reserves and balance of profit: General reserve account…. Dr. Owner’s fund account…. Dr. Profit & Loss account (profit)…. Dr. To Partners’ capital account… OR Partners’ capital account…. Dr. To Profit & Loss account (Loss)….

Step-4 Closing profit & loss adjustment Account (6) While closing Profit & Loss adjustment account and profit is transferred to partners’ capital account in their profit sharing ratio. Profit & Loss Adjustment account…. Dr. To Partner’s capital account…. (7) While closing Profit & Loss adjustment account and loss is transferred to partners’ capital account in their profit sharing ratio. Partners’ capital account…. Dr. To Profit & Loss Adjustment account….

Step-5 Goodwill transfer to partners’ capital account (8) When the value of goodwill agreed upon on amalgamation… Goodwill account…. Dr. To Partners’ capital account….

Step-6 Assets & Liabilities are not taken over 9) When assets are not taken over by new firm, assets are debited in partners’ capital account in their capital ratio. Partners’ capital account…. Dr. To Assets account…. (10) When liabilities are not taken over by new firm, liabilities are credited in partners’ capital account in their capital ratio. Liabilities account…. Dr. To Partners’ capital account….

Step-7 Assets and liabilities are taken over (11) Assets transferred to new firm’s account by closing assets account. New firm’s account…. Dr. To Assets account…. (12) Liabilities transferred to new firm’s account by closing liabilities account. Liabilities account…. Dr. To New firm’s account….

Step – 8 Partners’ capital account are closed and amount transfer to New Firms’ Account (13) Closing partners’ capital account and balance transfer to new firm’s account Partners’ capital account…. Dr. To New firm’s account….

Following accounts are to be prepared in the books of old firm. 1. Profit and loss adjustment Account. 2. Partners’ capital Account. 3. New firm’s Account.

Step to be follow in the books of new firm:

Step-1 Assets, Liabilities & Capital Taken over (1) When assets, liabilities and partners’ capital taken over by new firm. Assets account…. Dr. To liabilities account…. To Partners’ capital account….

Step-2 Goodwill Written off (2) When goodwill is written off in the new ratio. Partners’ capital account…. To Goodwill account…. Dr.

Step-3 Partners’ account closed (3) When cash/bank brought by partners as a capital in their new profit sharing ratio. Cash/bank account…. Dr. To Partners’ capital account…. (4) When cash/bank withdrawn by the partners. Partners’ capital account…. To Cash/bank account…. Dr.

Following accounts are to be prepared in the books of New firm. 1. Partners’ capital Account 2. Cash/bank Account 3. New firm’s opening balance sheet

Two firms namely 'Dave Brothers' and 'Bhatt Brothers' decided to amalgamate and form a new firm "Shri-Raj Brothers". On this date the balance sheets of Dave Brothers and Bhatt brothers were as follows: Balance sheets as on 31 -03 -2010 Liabilities Capital: Kandarp Chanakya Harshit Rudresh Reserve fund P & L account Creditors Bills payable Outstanding salary Dave Bros. Rs. Bhatt Bros. Rs. Assets 80, 000 60, 000 28, 000 14, 000 30, 000 6, 000 2, 800 60, 000 80, 000 40, 000 20, 000 40, 000 12, 000 8, 600 2, 20, 800 2, 600 Factory Office Machinery Investment Stock Debtor Cash/bank Prepaid expenses Dave Bros. Rs. Bhatt Bros. Rs. 60, 000 50, 000 20, 000 40, 000 30, 000 20, 000 80, 000 40, 000 30, 000 600 2, 20, 800 2, 600

Partners of the Dave Bros. were sharing profits and losses in the ratio of 4 : 3 and partners of the Bhatt Bros. were sharing 3 : 2. The following terms and conditions of amalgamation were agreed upon: 1. The profit loss sharing ratio shall be equal in new firm for each partner. 2. Dave Brother's factory is valued to Rs. 80, 000 3. Bhatt Brother's office is valued to Rs. 60, 000. 4. In both firms, value of machinery is to be reduced by 10%. 5. Value of Investment is increased by 10%.

6. Value of Dave Brother's stock is increased by 10% and value of Bhatt Brother's stock is reduced by 10%. 7. Provide 5% Bad debt Reserve on debtors. 8. New firm accepts creditors with 5% discount reserve. 9. Remaining liabilities is valued as per books. 10. New firm has to take one all the assets and liabilities including cash and bank. From the above information pass journal entries to close the books of Dave Brothers and Bhatt Brothers prepare necessary Accounts in the books of Dave Brothers and Bhatt Brothers [Saurashtra University, Dec. -2013 with some changes]

Journal entries in the books of Dave Brothers Date 1. 2. 3. 4. 5. Particulars Factory A/c Dr. Investment A/c Dr. Stock A/c Dr. To P & L adjustment A/c (Increase in value of factory, investment and stock) LF No. Debit Rs. 20, 000 2, 000 4, 000 26000 P & L adjustment A/c Dr. To Machinery A/c To Debtors A/c (Decrease in value of machinery and BDR calculated on debtors) 6, 500 Creditors A/c To P & L adjustment A/c (Decrease in value of creditors) 1, 500 Dr. Credit Rs. 5, 000 1, 500 Reserve fund A/c Dr. To Kandarp’s capital A/c To Chankaya’s capital A/c (Reserve fund transferred to partners’ capital account in their Profit sharing ratio. ) 28, 000 P & L A/c Dr. To Kandarp’s capital A/c To Chankaya’s capital A/c (P& L credit balance transferred to partners’ capital account in their Profit sharing ratio. ) 14, 000 16, 000 12, 000 8, 000 6, 000

6. 7. 8. 9. P & L adjustment A/c Dr. To Kandarp’s capital A/c To Chankaya’s capital A/c (P & L adjustment account closed and balance transferred to partners’ capital A/c) Shri Raj Bros. (new firm) A/c Dr. To Factory A/c To Machinery A/c To Investment A/c To Stock A/c To Debtors A/c To Cash/Bank A/c To Prepaid expenses A/c (Assets transferred to new firm’s account at new value) Creditors A/c Dr. Bills Payable A/c Dr. Outstanding salary A/c Dr. To Shri Raj Bros. (new firm) A/c (Liabilities transferred to new firm’s account) Kandarp’s capital A/c Dr. Chanakaya’s Capital A/c Dr. To Shri Raj Bros. (new firm) A/c (Partners’ capital account closed and balance transferred to new firm’s account) 21, 000 12, 000 9, 000 2, 40, 000 80, 000 45, 000 22, 000 44, 000 28, 500 20, 000 800 28, 500 6, 000 2, 800 37, 300 1, 16, 000 87, 000 2, 03, 000

Amalgamation Practical Example

Two firms, namely, ‘Manu and Nanu’ and ‘Adi and Bomi’ carriying on the same type of business agree to amalgamate as on 1 st April, 2018 under the name ‘Indian Traders’. Manu and Nanu were sharing profits and losses in the ratio of 3: 2 and Adi and Bomi were equal partners. st March, 2018 were as under: The balance. Liabilities sheet of the two. Manu firms&as Adi on 31 & Assets Manu & Adi & Nanu Rs. Capital A/cs Manu Nanu Adi Bomi Current A/cs Manu Nanu Creditors 1, 20, 000 1, 000 10, 000 6, 000 54, 000 2, 90, 000 Bomi Rs. Land Building Motor Cars Furniture and 1, 10, 000 Fixtures 74, 000 Stock Debtors Investments Balance at Bank 56, 000 2, 40, 000 Nanu Bomi Rs. 70, 000 50, 000 20, 000 17, 000 15, 000 57, 000 71, 000 15, 000 42, 000 12, 000 65, 000 31, 000 2, 90, 000 2, 40, 000

The following arrangements were agreed upon: 1. The Profit-sharing ratios among the partners Manu, Nanu, Adi and Bomi in the new firm were to be 6 : 5 : 4. 2. The capital of the new firm to be Rs. 4, 80, 000 to be provided by the partners in the profit sharing ratios. 3. The land building of ‘Adi and Bomi’ and sold just before amalgamation for Rs. 70, 000 and the proceeds of the same were to be retained for the business of the new firm. 4. The goodwill of ‘Manu and Nanu’ was taken at Rs. 40, 000 and that of ‘Adi and Bomi’ at Rs. 30, 000. 5. Manu was to take over his firm's investments at Rs. 12, 000. 6. Provision was to be made for doubtful debts of "Manu and Nanu" Rs. 4, 000 and of "Adi and Bomi" Rs. 5, 000. The creditors of each firm to be taken subject to a discount of 2. 5%. 7. The stocks of each firm were taken subject to discount of 10%. Other assets were taken over at the book- values. You are required to prepare necessary ledger accounts in books of Manu & Nanu and Adi & Bomi. You are also required to pass necessary journal entries and to prepare the opening Balance Sheet of ‘Indian Traders’ and show your detailed working for arriving at the "Balance at Bank" shown in the Balance Sheet of the new firm.

Necessary accounts in the books of Manu and Nanu Profit and Loss Adjustment Account Dr. Particulars To Investments A/c To Debtors A/c (BDR) To Stock A/c Cr. Amounts Particulars 3, 000 By Creditors A/c (Creditors 54, 000 * 4, 000 2. 5%Disc Res) By Loss : (transfer to 5, 700 capital a/c) Manu 6, 810 Nanu 4, 540 12, 700 Amounts 1, 350 12, 700

Partner’s Capital Account Dr. Cr. Particulars To Investment A/c Manu Nanu Particulars 12, 000 Manu Nanu 1, 20, 000 1, 000 By current A/c 10, 000 6, 000 By Goodwill 24, 000 16, 000 1, 54, 000 1, 22, 000 By Bal. B/d - To Loss (Trans from P & L Adj. A/c) To Indian Traders A/c(new firm) (Closing capital bal. transferred) 6, 810 4, 540 1, 35, 190 1, 17, 460 1, 54, 000 1, 22, 000

Indian Traders (New Firm) Account Dr. Particulars To Goodwill A/c To Land Building A/c To Motor Car A/c To Furniture A/c To Stock A/c To Debtors A/c To Bank A/c Cr. Amounts Particulars 40, 000 By Creditors A/c 70, 000 20, 000 By Manu’s capital A/c 15, 000 By Nanu’s Capital A/c 51, 300 67, 000 42, 000 3, 05, 300 Amounts 52, 650 1, 35, 190 1, 17, 460 3, 05, 300

Necessary accounts in the books of Adi and Bomi Profit and Loss Adjustment Account Dr. Particulars To Debtors A/c(BDR) To Stock A/c To Profit: (transfer to capital a/c) Adi 4, 950 Bomi 4, 950 Cr. Amounts Particulars 5, 000 By Land & Building 6, 500 By Creditors (56000 * 2. 5% Disc. Res) Amounts 20, 000 1, 400 9, 900 21, 400

Partner’s Capital Account Dr. Cr. Particulars Adi To Indian Traders A/c(new firm) (Closing capital bal. transferred) 1, 29, 950 Bomi Particulars 93, 950 By Bal. B/d By Goodwill A/c By Profit: (Trans from P & L Adj. A/c 1, 29, 950 93, 950 Adi Bomi 1, 10, 000 74, 000 15, 000 4, 950 1, 29, 950 93, 950

Indian Traders (New Firm) Account Dr. Particulars To Goodwill A/c To Motor Car A/c To Furniture A/c To Stock A/c To Debtors A/c To Bank A/c (31, 000 + 70, 000 of L & B) Cr. Amounts Particulars 30, 000 By Creditors A/c 17, 000 12, 000 58, 500 By Adi’s capital A/c 60, 000 By Bomi’s Capital A/c 1, 000 2, 78, 500 Amounts 54, 600 1, 29, 950 93, 950 2, 78, 500

Working Note: Working for Bank Balance Particulars Manu and Nanu’s bank bal Add: Adi and Bomi’s bank bal Add: Cash brought by partners: Manu(1, 44, 000 -1, 35, 190) Nanu(1, 20, 000 -1, 17, 460) Bomi(96, 000 -93, 950) Less: Paid to Adi(1, 29, 950 -1, 12, 000) Amount 42, 000 1, 43, 000 8, 810 2, 540 2, 050 13, 400 1, 56, 000 9, 950 1, 46, 450

New Partner’s Capital Account Dr. Particulars To Balance C/f (In new balance sheet- as per information) ( 4, 80, 000 in 6: 5: 5: 4) To Cash/Bank A/c (? ) (Cash Withdraw) Cr. Manu Nanu Adi 1, 44, 00 1, 20, 00 0 Bomi Particulars 96, 000 By Bal. B/d (From Old Partners) By Cash/Bank A/c (? ) (Cash - Brought) - - Manu 1, 35, 190 Nanu Adi Bomi 1, 17, 46 1, 29, 95 0 0 8, 810 93, 950 2, 050 2, 540 - 9, 950 1, 44, 00 1, 20, 00 1, 29, 95 0 0 0 96, 000 1, 44, 000 1, 20, 00 1, 29, 95 0 0 96, 000

Cash/Bank Account Dr. Particulars To Balance B/d (42, 000 + 1, 000) To Manu’s Cap. A/c To Nanu’s Cap. A/c To Bomi’s Cap. A/c Cr. Amounts Particulars 1, 43, 000 By Adi’s Cap. A/c 8, 810 By Balanc C/f ( Balance 2, 540 Sheet) 2, 050 1, 56, 400 Amounts 9, 950 1, 46, 450 1, 56, 400

Journal entries in the books of Indian Traders (New Firm) Date 1. Particulars Goodwill A/c Dr. Land Building A/c Dr. Motor Car A/c Dr. Furniture A/c Dr. Stock A/c Dr. Debtors A/c Dr. Bank A/c Dr. Res. For discount on creditors Dr. To Creditors A/c To Bad Debts Reserve A/c To Manu’s capital A/c To Nanu’s Capital A/c (Manu and Nanu’s assets, liabilities and capital taken over by Indian Traders) LF No. Debit Rs. 40, 000 70, 000 20, 000 15, 000 51, 300 71, 000 42, 000 1, 350 Credit Rs. 54, 000 1, 35, 19 0 1, 17, 46 0

2. 3. 4. Goodwill A/c Dr. Motor Car A/c Dr. Furniture A/c Dr. Stock A/c Dr. Debtors A/c Dr. Bank A/c Dr. Res. For discount on creditors. Dr. To Creditors A/c To Bad Debts Reserve A/c To Adi’s capital A/c To Bomi’s Capital A/c (Adi and Bomi’s assets, liabilities and capital taken over by Indian Traders) Bank A/c Dr. To Manu’s capital A/c To Nanu’s capital A/c To Bomi’s Capital A/c (Cash/bank brought by partners in new firm) Adi’s capital A/c Dr. To Bank (Cash/bank withdrawn by Adi being excess capital) 30, 000 17, 000 12, 000 58, 500 65, 000 1, 400 56, 000 5, 000 1, 29, 950 93, 950 13, 400 8, 810 2, 540 2, 050 9, 950

Opening Balance sheet of Indian Traders Liabilities Capital A/c Amounts Assets Goodwill Amounts 70, 000 Manu 1, 44, 000 Land Building 70, 000 Nanu 1, 20, 000 Motorcar 37, 000 Adi Furniture 27, 000 1, 20, 000 Bomi 96, 000 Stock 4, 80, 000 Creditors -Dis. Res. 1, 10, 000 Debtors 1, 36, 000 -BDR 2, 750 1, 09, 800 9, 000 Bank Balance 1, 27, 000 1, 46, 450 1, 07, 250 5, 87, 250

Amalgamation Practical Example

Two firms, namely, ‘Manu and Nanu’ and ‘Adi and Bomi’ carriying on the same type of business agree to amalgamate as on 1 st April, 2018 under the name ‘Indian Traders’. Manu and Nanu were sharing profits and losses in the ratio of 3: 2 and Adi and Bomi were equal partners. st March, 2018 were as under: The balance. Liabilities sheet of the two. Manu firms&as Adi on 31 & Assets Manu & Adi & Nanu Rs. Capital A/cs Manu Nanu Adi Bomi Current A/cs Manu Nanu Creditors 1, 20, 000 1, 000 10, 000 6, 000 54, 000 2, 90, 000 Bomi Rs. Land Building Motor Cars Furniture and 1, 10, 000 Fixtures 74, 000 Stock Debtors Investments Balance at Bank 56, 000 2, 40, 000 Nanu Bomi Rs. 70, 000 50, 000 20, 000 17, 000 15, 000 57, 000 71, 000 15, 000 42, 000 12, 000 65, 000 31, 000 2, 90, 000 2, 40, 000

The following arrangements were agreed upon: 1. The Profit-sharing ratios among the partners Manu, Nanu, Adi and Bomi in the new firm were to be 6 : 5 : 4. 2. The capital of the new firm to be Rs. 4, 80, 000 to be provided by the partners in the profit sharing ratios. 3. The land building of ‘Adi and Bomi’ and sold just before amalgamation for Rs. 70, 000 and the proceeds of the same were to be retained for the business of the new firm. 4. The goodwill of ‘Manu and Nanu’ was taken at Rs. 40, 000 and that of ‘Adi and Bomi’ at Rs. 30, 000. 5. Manu was to take over his firm's investments at Rs. 12, 000. 6. Provision was to be made for doubtful debts of "Manu and Nanu" Rs. 4, 000 and of "Adi and Bomi" Rs. 5, 000. The creditors of each firm to be taken subject to a discount of 2. 5%. 7. The stocks of each firm were taken subject to discount of 10%. Other assets were taken over at the book- values. You are required to prepare necessary ledger accounts in books of Manu & Nanu and Adi & Bomi. You are also required to pass necessary journal entries and to prepare the opening Balance Sheet of ‘Indian Traders’ and show your detailed working for arriving at the "Balance at Bank" shown in the Balance Sheet of the new firm.

Necessary accounts in the books of Manu and Nanu Profit and Loss Adjustment Account Dr. Particulars To Investments A/c To Debtors A/c (BDR) To Stock A/c Cr. Amounts Particulars 3, 000 By Creditors A/c (Creditors 54, 000 * 4, 000 2. 5%Disc Res) By Loss : (transfer to 5, 700 capital a/c) Manu 6, 810 Nanu 4, 540 12, 700 Amounts 1, 350 12, 700

Partner’s Capital Account Dr. Cr. Particulars To Investment A/c Manu Nanu Particulars 12, 000 Manu Nanu 1, 20, 000 1, 000 By current A/c 10, 000 6, 000 By Goodwill 24, 000 16, 000 1, 54, 000 1, 22, 000 By Bal. B/d - To Loss (Trans from P & L Adj. A/c) To Indian Traders A/c(new firm) (Closing capital bal. transferred) 6, 810 4, 540 1, 35, 190 1, 17, 460 1, 54, 000 1, 22, 000

Indian Traders (New Firm) Account Dr. Particulars To Goodwill A/c To Land Building A/c To Motor Car A/c To Furniture A/c To Stock A/c To Debtors A/c To Bank A/c Cr. Amounts Particulars 40, 000 By Creditors A/c 70, 000 20, 000 By Manu’s capital A/c 15, 000 By Nanu’s Capital A/c 51, 300 67, 000 42, 000 3, 05, 300 Amounts 52, 650 1, 35, 190 1, 17, 460 3, 05, 300

Necessary accounts in the books of Adi and Bomi Profit and Loss Adjustment Account Dr. Particulars To Debtors A/c(BDR) To Stock A/c To Profit: (transfer to capital a/c) Adi 4, 950 Bomi 4, 950 Cr. Amounts Particulars 5, 000 By Land & Building 6, 500 By Creditors (56000 * 2. 5% Disc. Res) Amounts 20, 000 1, 400 9, 900 21, 400

Partner’s Capital Account Dr. Cr. Particulars Adi To Indian Traders A/c(new firm) (Closing capital bal. transferred) 1, 29, 950 Bomi Particulars 93, 950 By Bal. B/d By Goodwill A/c By Profit: (Trans from P & L Adj. A/c 1, 29, 950 93, 950 Adi Bomi 1, 10, 000 74, 000 15, 000 4, 950 1, 29, 950 93, 950

Indian Traders (New Firm) Account Dr. Particulars To Goodwill A/c To Motor Car A/c To Furniture A/c To Stock A/c To Debtors A/c To Bank A/c (31, 000 + 70, 000 of L & B) Cr. Amounts Particulars 30, 000 By Creditors A/c 17, 000 12, 000 58, 500 By Adi’s capital A/c 60, 000 By Bomi’s Capital A/c 1, 000 2, 78, 500 Amounts 54, 600 1, 29, 950 93, 950 2, 78, 500

Working Note: Working for Bank Balance Particulars Manu and Nanu’s bank bal Add: Adi and Bomi’s bank bal Add: Cash brought by partners: Manu(1, 44, 000 -1, 35, 190) Nanu(1, 20, 000 -1, 17, 460) Bomi(96, 000 -93, 950) Less: Paid to Adi(1, 29, 950 -1, 12, 000) Amount 42, 000 1, 43, 000 8, 810 2, 540 2, 050 13, 400 1, 56, 000 9, 950 1, 46, 450

New Partner’s Capital Account Dr. Particulars To Balance C/f (In new balance sheet- as per information) ( 4, 80, 000 in 6: 5: 5: 4) To Cash/Bank A/c (? ) (Cash Withdraw) Cr. Manu Nanu Adi 1, 44, 00 1, 20, 00 0 Bomi Particulars 96, 000 By Bal. B/d (From Old Partners) By Cash/Bank A/c (? ) (Cash - Brought) - - Manu 1, 35, 190 Nanu Adi Bomi 1, 17, 46 1, 29, 95 0 0 8, 810 93, 950 2, 050 2, 540 - 9, 950 1, 44, 00 1, 20, 00 1, 29, 95 0 0 0 96, 000 1, 44, 000 1, 20, 00 1, 29, 95 0 0 96, 000

Cash/Bank Account Dr. Particulars To Balance B/d (42, 000 + 1, 000) To Manu’s Cap. A/c To Nanu’s Cap. A/c To Bomi’s Cap. A/c Cr. Amounts Particulars 1, 43, 000 By Adi’s Cap. A/c 8, 810 By Balanc C/f ( Balance 2, 540 Sheet) 2, 050 1, 56, 400 Amounts 9, 950 1, 46, 450 1, 56, 400

Journal entries in the books of Indian Traders (New Firm) Date 1. Particulars Goodwill A/c Dr. Land Building A/c Dr. Motor Car A/c Dr. Furniture A/c Dr. Stock A/c Dr. Debtors A/c Dr. Bank A/c Dr. Res. For discount on creditors Dr. To Creditors A/c To Bad Debts Reserve A/c To Manu’s capital A/c To Nanu’s Capital A/c (Manu and Nanu’s assets, liabilities and capital taken over by Indian Traders) LF No. Debit Rs. 40, 000 70, 000 20, 000 15, 000 51, 300 71, 000 42, 000 1, 350 Credit Rs. 54, 000 1, 35, 19 0 1, 17, 46 0

2. 3. 4. Goodwill A/c Dr. Motor Car A/c Dr. Furniture A/c Dr. Stock A/c Dr. Debtors A/c Dr. Bank A/c Dr. Res. For discount on creditors. Dr. To Creditors A/c To Bad Debts Reserve A/c To Adi’s capital A/c To Bomi’s Capital A/c (Adi and Bomi’s assets, liabilities and capital taken over by Indian Traders) Bank A/c Dr. To Manu’s capital A/c To Nanu’s capital A/c To Bomi’s Capital A/c (Cash/bank brought by partners in new firm) Adi’s capital A/c Dr. To Bank (Cash/bank withdrawn by Adi being excess capital) 30, 000 17, 000 12, 000 58, 500 65, 000 1, 400 56, 000 5, 000 1, 29, 950 93, 950 13, 400 8, 810 2, 540 2, 050 9, 950

Opening Balance sheet of Indian Traders Liabilities Capital A/c Amounts Assets Goodwill Amounts 70, 000 Manu 1, 44, 000 Land Building 70, 000 Nanu 1, 20, 000 Motorcar 37, 000 Adi Furniture 27, 000 1, 20, 000 Bomi 96, 000 Stock 4, 80, 000 Creditors -Dis. Res. 1, 10, 000 Debtors 1, 36, 000 -BDR 2, 750 1, 09, 800 9, 000 Bank Balance 1, 27, 000 1, 46, 450 1, 07, 250 5, 87, 250

Amalgamation PRACTICAL EXAMPLE

Necessary accounts in the books of M/s N-K Profit and Loss Adjustment Account Dr. Particulars To Land & Building A/c To Debtors A/c (BDR) To Stock A/c Cr. Amounts Particulars 9, 000 By Plant & Machinry A/c 1, 500 By Creditors A/c (Disc Res) Amounts 6, 000 4, 500 15, 000 By Loss : (transfer to capital a/c) N 6, 000 K 9, 000 15, 000 25, 500

Partner’s Capital Account Dr. Particulars To Investment A/c To Loss (Trans from P & L Adj. A/c) To Shilpan Dept. store A/c(new firm) (Closing capital bal. transferred) Cr. N K 13, 500 6, 000 1, 12, 500 1, 32, 000 Particulars N K 9, 000 By Bal. B/d 90, 000 60, 000 By General Res. 9, 000 A/c 15, 000 22, 500 By Goodwill 18, 000 27, 000 By Bank Loan 9, 000 6, 000 1, 32, 000 1, 15, 500 97, 500 1, 15, 500

Shilpan Dept. store (New Firm) Account Dr. Particulars To Goodwill A/c To Land Building A/c To Plant & Mach. A/c To Stock A/c To Debtors A/c To Cash A/c Cr. Amounts 60, 000 1, 03, 500 66, 000 30, 000 36, 000 7, 500 3, 000 Particulars By Creditors A/c By Bank Overdraft Amounts 69, 000 24, 000 By N’s capital A/c By K’s Capital A/c 1, 12, 500 97, 500 3, 000

Goodwill Account Dr. Particulars To Bal. B/d Cr. Amounts 15, 000 Particulars By Bal. C/f To Partners Capital A/c N 18, 000 K 27, 000 Amounts 60, 000 45, 000 60, 000

Cash Account Dr. Particulars To Balance B/d Cr. Amounts Particulars 22, 500 By k’s loan A/c By Balance C/f (New Firm) 22, 500 Amounts 15, 000 7, 500 22, 500

Ram & Mohan and Puja & Juhi were the partners sharing profits and losses in the ratio of 2: 1 and 3: 2 respectively. Balance sheet of both the firm as on 31 -03 -2018 were as under. Both firms decided to amalgamate. Books of the firm Ram & Mohan are to be continued and it absorbed the firm of Puja & Juhi in their firm. Liabilities Capital: Ram Mohan Puja Juhi General Reserve Creditors Bills payable Bank Loan Outstanding expenses Ram & Mohan Puja & Juhi 55, 500 16, 500 13, 500 30, 000 7, 500 22, 500 4, 500 37, 500 22, 500 7, 500 - 1, 50, 000 90, 000 Assets Machinery Furniture Stock Debtors Prepaid expenses Bills receivable Cash and Bank Ram & Mohan Puja & Juhi 45, 000 9, 000 43, 500 30, 000 3, 000 4, 500 15, 000 30, 000 34, 500 21, 750 1, 50, 000 90, 000

Following particulars are to be considered to determine the new value of both the firm’s assets: 1. Value of Machinery of the firm Ram & Mohan is decreased by Rs. 4, 500, and Value of Machinery of the firm Puja & Juhi is decreased by 15%. 2. Stock of the firm Ram & Mohan is valued Rs. 51, 750 while stock of the firm Puja & Juhi is to be taken as per book-value. 3. Provision for Bad debt Reserve was to be made at 5% on debtors of both the firms. 4. Value of goodwill of the firm Ram & Mohan is fixed of Rs. 13, 500. Goodwill is to be written off in the (books of) new firm. 5. Furniture of the firm Ram & Mohan was not taken by new firm. 6. Outstanding expenses of the firm Ram & Mohan was not taken by new firm. The total capital of the new firm was to be Rs. 1, 80, 000 which was to be in new Profit sharing ratio of 3 : 2 : 1 among all four partners. The difference was to be adjusted in cash. Prepare necessary accounts in the books of Ram & Mohan and Puja & Juhi. Prepare new balance sheet and necessary accounts in books of new firm(Ram & Mohan).

Necessary accounts in the books of Ram & Mohan Profit and Loss Adjustment Account Dr. Particulars To Machinery A/c To Debtors A/c (Debtors Rs. 30, 000*5%) To Profit : (transfer to capital a/c) Ram 1, 500 Mohan 750 Cr. Amounts Particulars 4, 500 By Stock A/c Amounts 8, 250 1, 500 2, 250 8, 250

Partner’s Capital Account Dr. Particulars To Business Purchase A/c (Closing capital bal. transferred) Cr. Ram 75, 000 Mohan Particulars 26, 250 By Bal. B/d 26, 250 Ram Mohan 55, 500 16, 500 By Reserve fund A/c 9, 000 4, 500 By Goodwill A/c 9, 000 4, 500 By Profit: (trans. To P & L Adj. A/c) 1, 500 75, 000 26, 250

Business Purchase Account Dr. Cr. Particulars To Furniture A/c To New Capital Account (transfer to partners’ new capital account) Ram 64, 500 Mohan 32, 250 Amounts Particulars 9, 000 By Balance B/d from partners capital A/cs Ram 75, 000 Mohan 26, 250 By Outstanding 96, 750 expenses A/c 1, 05, 750 Amounts 1, 01, 250 4, 500 1, 05, 750

New Firm’s Account Dr. Cr. Particulars To Machinery A/c To Stock A/c To Debtors A/c To Prepaid expense A/c To Bills Receivable A/c To Cash A/c To Goodwill A/c Amounts 40, 500 51, 750 28, 500 3, 000 4, 500 15, 000 13, 500 1, 56, 750 Particulars Amounts By Balance B/d from purchase A/c Ram 64, 500 Mohan 32, 250 96, 750 By Creditors A/c By Bills Payable A/c By Bank Loan A/c 30, 000 7, 500 22, 500 1, 56, 750

Necessary accounts in the books of Puja & Juhi Profit and Loss Adjustment Account Dr. Cr. Particulars To Machinery A/c To Debtors A/c (Debtors Rs. 21, 750*5% BDR) Amounts Particulars Amounts 4, 500 By Loss: (Transfer to partners’ capital A/c) 1, 088 Puja 3, 353 Juhi 2, 235 5, 588

Partner’s Capital Account Dr. Particulars Cr. Puja Juhi To Loss: (Transferred from P & L Adj. A/c) 3, 353 To New firm’s A/c (Transfer of closing bal to partners’ new cap. A/c) 34, 147 20, 265 37, 500 22, 500 Particulars 2, 235 By Bal. B/d Puja Juhi 37, 500 22, 500

New Firm’s Account Dr. Cr. Particulars To Machinery A/c To Furniture A/c To Stock A/c To Debtors A/c To Cash A/c Amounts Particulars 25, 500 By Capital A/c 3, 000 Puja 34, 147 34, 500 Juhi 20, 265 20, 662 750 By Creditors A/c By Bills Payable A/c 84, 412 Amounts 54, 412 22, 500 7, 500 84, 412

Necessary accounts in the books of New firm Ram & Mohan Partner’s Capital Account Dr. Particulars TO Goodwill A/c To closing Balance of capital(Transf er in new B/s) Cr. Ram 5, 062 67, 500 72, 562 Moha n Puja 3, 375 45, 000 48, 375 Juhi Particulars Ram 1, 688 By Bal B/d (From Partners, capital and Busi. Pur. A/c) 64, 500 32, 250 34, 147 20, 265 22, 500 By Cash/Bank A/c 8, 062 16, 125 14, 228 3, 923 72, 562 48, 375 24, 188 Mohan Puja Juhi

Cash/Bank Account Dr. Particulars To Balance B/d (15000+750) To New Capital A/c (cash Brought by partners) Ram 8, 062 Mohan 16, 125 Puja 14, 228 Juhi 3, 923 Cr. Amounts Particulars 15, 750 By Closing Balance C/d (transfer to new B/s) Amounts 58, 088 42, 338 58, 088

Balance sheet of new firm Dr. Cr. Liabilities Capital: (1, 80, 000 in ratio of 3: 2: 2: 1) Ram 67, 500 Mohan 45, 000 Puja 45, 000 Juhi 22, 500 Creditors (30, 000+22, 500) Bank Loan Bills Payable Amount Assets Machinery (40, 500+25, 500) Furniture Stock (51, 750+34, 500) Debtors: 51, 750 1, 80, 000 (30, 000+21, 750) -B. D. R. (5%) 2, 588 52, 500 22, 500 Prepaid expenses 15, 000 Bills Receivable Cash/Bank (Cl. Bal as per cash/bank A/c) 2, 70, 000 Amount 66, 000 3, 000 86, 250 49, 162 3, 000 4, 500 58, 088 2, 70, 000