AMALGAMATION OF FIRMS

1. Two firms a & B and C & D carrying on similar business agreed to amalgamate their business as from 1.1.2010 on which date their balance sheet stood as follows: Liabilities A&B C&D Assets A&B C&D Creditors 80000 Bank 22400 26800 Mrs. As loan 20000 Stock 81600 73200 Capitals: Debtors 60000 80000 A 160000 Furniture 16000 20000 B 80000 Premises 160000 C 96000 Investments 60000 D 64000 340000 260000 340000 260000 It was mutually agreed that Mrs. As loan should be repaid by A&B firm. Investments of C&D not to be taken over by the new firm. Goodwill of M/s A&B was fixed at `32000 and that of M/s C&D at `40000. Premises were revalued at `200000. But stocks of M/s A&B found overvalued by `16000, stocks of M/s C&D were undervalued by `8000. A reserve of 5% on debtors of both the firms is necessary. Total capital of the new firm was to be `320000 and the capital of each partner was to be in his profit sharing ratio which was to be 3:2:3:2. Goodwill account of the new firm was to be written off. Open the necessary ledger accounts in both the firms books and prepare capital account in the books of the new firm. 2. The following is the Balance Sheet of M/s M&N who share profits and losses equally. Liabilities Assets ` ` Sundry creditors 3000 Cash 1000 Capitals: Stock in trade 2000 M 3000 Sundry debtors 2000 N 2000 Furniture 1000 Plant and Machinery 20000 8000 8000 M&N decided to amalgamate with M/s O&P on the following terms: Plant and Machinery to be taken over at `1600; Stocks at `1800; Sundry debtors at `1680; Furniture and creditors at book value. Pass journal entries to close the books of M/s M&N 3. Wide and Narrow are two traders. Their balance sheet as on 31.3.2011 are as follows: Liabilities Wide Narrow Assets Wide Narrow Sundry creditors 42000 32000 Plant and Machinery 30000 40000 Bank overdraft 20000 - Stock in trade 40000 20000 Reserves 10000 Sundry debtors 52000 44000 Capital: Bank 8000 Wide 60000 Narrow 70000 122000 112000 122000 112000
Page | 1

They agreed to amalgamate their business on 1.4.2011. The following revaluations to be made: a. Plant and Machinery were to be reduced by 20% b. Stock was to be reduced by 40% in case of Wide and 20% in case of Narrow. c. A reserve of 5% on debtors is to be raised in both cases. d. The partners are to be credited with goodwill of `5000 each. e. The bank overdraft of Wide is to be paid by him. Pass necessary ledger accounts in the books of Wide and Narrow and also prepare opening balance sheet of the new firm. 4. The following are the Balance sheets of M/s A&B and M/s C&D as on 31.3.2011 on which date they decided to amalgamate their business: Liabilities A&B C&D Assets A&B C&D Capitals: Machinery 18000 20000 A 40000 Furniture 24000 6000 B 20000 Investments 8000 C 30000 Stock 16000 30000 D 30000 Debtors 32000 14000 Reserves 12000 - Cash 2000 6000 Creditors 28000 16000 100000 76000 100000 76000 A&B were sharing profits and losses in the ratio of 3:2 and C&D equally. The terms of amalgamation were as follows: a. The new firm was to take over all the assets and liabilities of both the firms. b. The assets of A&B were valued as follows: Machinery `20000, Stock `12000, Debtors `30000. Furniture and Investments at book values and Goodwill `10000 c. The assets of C&D were valued as follows: Machinery `24000, Furniture `9000, Stock `28000, Debtors `13000 and Goodwill `12000 Close the books of M/s A&B and M/s C&D and prepare amalgamated balance sheet of the new firm. 5. Following is the balance sheet of P&Q and R&S who share profits P&Q 2:1 and R&S 3:2. The two firms decided to amalgamate. Liabilities P&Q R&S Assets P&Q R&S Capitals: Land and Buildings - 100000 P 80000 Plant and Machinery 40000 60000 Q 20000 Patents 20000 10000 R 100000 Stock 50000 40000 S 100000 Debtors 20000 32000 Sundry creditors 32000 46000 Investments 10000 Reserves 20000 - Cash 12000 4000 152000 246000 152000 246000

Page | 2

a. Investments of P&Q were not to be taken over by the new firm, but were to be distributed between partners. b. Goodwill P&Q was `40000 and R&S `80000; however it was agreed that the total amount of goodwill in the new firm to be `100000 only. c. Assets and liabilities of P&Q were valued as follows; Plant and Machinery `20000; Patents `150000; Stock `40000; Debtors `15000; Creditors `30000 d. Assets and liabilities of R&S were valued as follows; Land and Buildings `120000; Plant and Machinery `55000; Patents `10000; Stock `45000; Debtors `30000 and Creditors `40000 e. Total capital of the new firm to be `400000. Each partner shall introduce such sum as would make his capital equal to one fourth of the total capital or withdraw excess capital, P,Q,R,S are to be equal partners. Prepare necessary ledger accounts in the books of old firm and show amalgamated balance sheet in the books of the new firm. 6. Following are the balance sheets of M/s A&B and M/s X&Y as on 31.12.2010. Liabilities A&B X&Y Assets A&B X&Y Creditors 16000 23000 Buildings 50000 Reserves 10000 - Machinery 20000 30000 Capitals: Patents 10000 5000 A 40000 Stock 25000 20000 B 10000 Debtors 10000 16000 X 50000 Investments 5000 Y 50000 Cash 6000 2000 76000 123000 76000 123000 A&B shared profits and losses in the ratio of 3:2 and X&Y shared equally. The firms decided to amalgamate on the following terms: a. Investments of A&B were not to be taken over by the new firm, A&B to take them in their profit sharing ratio. b. Goodwill of A&B was `20000 and that of X&Y `40000 c. Patents of A&B were `15000 and stock `30000. A provision of 8% was to be created on debtors d. Machinery of X&Y to be written down to `25000, stock of X&Y was found overvalued by `2000 and the book debts of `1000 was bad and had to be written off. Patents of X&Y were valued at `8000. You are required to prepare ledger accounts in the books of old firms and prepare amalgamated balance sheet of the new firm.

Page | 3