Newton V Birmigham Small Arms Company

In: Business and Management

Submitted By warigia
Words 262
Pages 2
Amalgamation of partnerships
Combination of two or more entities to form one entity.
Reasons for amalgamation * Eliminate wasteful competition * Pool business talents and acumen for enhanced performance * Enjoy economies of scale
Secure greater efficiency
Accounting procedure
Involves two processes; * Closing the books of the individual firms * Preparing the opening statement of financial position for the new firm A. Closing the books of the individual firms
1. Open a realisation account for each firm
2. Transfer all the assets to the realisation accounts except cash/Bank Dr. Realisation A/C with book values Cr. Asset A/C
3. Transfer all the liabilities to the realisation A/C Dr. Liability A/C Cr. Realisation A/C
4. for the agreed values of the assets and liabilities Dr. Asset A/C- For the new firm Cr. Realisation A/C Dr. Realisation A/C Cr. Liability A/C- For the new firm
5. for the balances in the realisation accounts Dr. Realisation A/C using the old Cr. Old Partners capital A/Cs P&L ratio
Or vice versa
6. The capital required by each partner in the new business should be the balance c/d in the partners’ capital accounts while the balancing figures in the capital accounts will be the the cash that will be either paid out or introduced by a partner
Dr. Old partners’ capital A/Cs Cr. New partners’ capital A/Cs
6. The remaining cash in an individual business is then transferred to the newly combined business DR. New cash/bank A/C Cr. Old cash/bank…...

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