AMALGAMATION PRACTICE EXERCISES

AMALGAMATION OF THE FIRMS

1. A and B each carrying on business as a sole trader decided to combine as on January 1,2002 when their individual Balance Sheets were as follows.
A B A B
Creditors 30,000 25,000 Cash 14,000 8,000
Bank Overdraft 20,000 15,000 Debtors 50,000 40,000
Capital 62,000 31,000 Stock 18,000 11,000
Machinery 20,000 12,000
National war
_______ ______ Bonds 10,000 -____
1,12,000 71,000 1,12,000 71,000 _

The following revaluations were to be made before the firms were amalgamated:
(a) A provision of 5% is to be made against debtors.
(b) Stock was to be reduced in case of A by 10% and in case of B by 5%.
(c) Machinery is to be reduced by 20%.
(d) Each partner is to be credited with goodwill of Rs.20,000.
(e) The bank overdraft of B is to be paid off by him.
(f) National war bonds of A were not take over.

B should introduce cash to make his capital equal of that of A.
You are required to pass the necessary journal entries to close the books of A and B and the opening entries in the books of the new firm. Prepare also the Balance Sheet of the new firm.


2. M/S A and Co., having A and B as equal partners, decided to amalgamate with C and Co., have C and D as equal partners on the following terms and condition:
1. The new firm to take investments at 10% depreciation, land at Rs.80,000, premises at Rs.45,000, machinery at Rs.9,000 and to take over only the trade liabilities of both the firms, the debtors being taken over at book value including provision.
2. The new firm to pay Rs.12,000 to each firm for Goodwill.
3. Typewriters at the written off value of Rs.800, belonging to C and Co., and not appearing in the B/S was also not taken over by the new firm.
4. It was also agreed that the furniture belonging to both the firms be not taken over by the firm.
5. All the four partners in the new firm to bring in Rs.1,60,000 as capital in equal shares.
The following were the Balance Sheets of both the firms on the date of amalgamation;
Balance Sheets
Liabilities A & Co,. C & Co,. Assets A & Co, C & Co,.
Rs. Rs Rs. Rs
Sundry Creditors 20,000 10,000 Cash at Bank 15,000 8,000
Bills Payable 5,000 Investment 10,000 8,000
Bank Overdraft 2,000 10,000 Rs.
A’s Loan 6,000 Debtors 10,000


Capitals: Less: Provision 1,000
A 35,000 9,000 8,000
B 22,000 Furniture 12,000 6,000
C 36,000 Premises 30,000
D 20,000 Land 50,000
General Reserve 8,000 3,000 Machinery 15,000
Investment Goodwill 9,000
Fluctuation Fund 2,000 1,000 _______ _______
1,00,000 80,000 1,00,000 80,000_

Pass journal entries in the books of both the firms and prepare a Balance sheet of the new firm.


3. Following were the Balance Sheets of two firms M/s R and S and M/s X and Y as on 31st December, 2001:
M/s R and S
Rs. Rs.
Creditor 3,000 Stock 50,000
Bills payable 6,000 Debtors 30,000
Capitals: 50,000 Premises 20,000
R 50,000 Plant and Machinery 5,000
S 50,000 Bank 1,500
Furniture 500
_______ Investment 2,000
1,09,000 1,09,000

M/s X and Y
Rs. Rs.
Creditor 25,000 Stock 75,000
Bank C/d 10,300 Debtors 45,000
X’s Capitals: 52,500 Plant and Machinery 20,000
Y’s Capitals 52,500 __ Furniture 300____
1,40,300 1,40,300

The two firms decided to amalgamate their respective business from 1st January 2002. For this purpose it was agreed that the premises and plant and machinery belonging to R&S should be taken over by the new firm at Rs.25,000 and Rs.10,000 respectively. X & Y to be credited with Rs.5,000 for certain patent rights they possessed which became the property of the partnership and which were not included in their Balance Sheet. All the other assets were taken over at the values stated in the respective Balance sheets except the investment belonging to R and S which were not take over. Both firms undertook to discharge their own liabilities.

Prepare ledger accounts in the books of the old firms and Balances Sheet of the new firm.

4. Following were the Balance Sheets as at 31st December, 2001 of two firms M/s P & Q and M/s R &S.

P & Q R & S P & Q R & S
Rs. Rs Rs. Rs
Creditors 3,000 25,000 Stock 50,000 75,000
Bills Payable 6,000 - Debtors 30,000 45,000
Bank Overdraft - 10,300 Premises 20,000 - Capitals: Plant and Machinery 5,000 20,000
P 50,000 Bank 1,500 -
Q 50,000 Furniture 500 300
R - 52,500 Defence Bonds 2,000 - S - 52,500 _______ _______
1,09,000 1,40,300 1,09,000 1,40,300




The two firms decided to amalgamate their business from 1st January 2002. For this purpose it was agreed that the premises and plant and machinery belonging to P&Q taken over by the new firm at Rs.25,000 and Rs.10,000 respectively. R & S were to be credited with Rs.5,000 at the value of certain patent rights they possessed which became the property of the partnership and which were not included in their Balance Sheet. All the other assets were taken over a book values. Both firms undertook to discharge their own liabilities and it was agreed that P&Q should introduce cash to make their capital equal to that of R&S
Pass incorporating entries in the books of the new firm and prepare also the Balances Sheet of the new firm.