Amalgamation of Partnership firms


Amalgamation   of  Partnership  firms

When two or more firms merge into one firm and makes a new firm , then this is called amalgamation of firms . For accounting point of view this definition is so important because if one firm purchases other firm , then this is not called amalgamation but if both firms decide to join or integrate then this is called amalgamation .

For Example

Suppose A and B firm decide to close their business and start the business with the name of AB firm after joining with each other then this is called amalgamation of A and B firm.



Steps for closing the accounts of old firm at the time of amalgamation of firms

When two firm amalgamate with each other , at this time we treat following accounting in the books of old firms so that all doubt solves .
Revaluation of Assets and Liabilities
All entries same as at the time of admission and retirement
Transferring reserve to old partners capital account into their old ratio
treatment of Goodwill
We evaluate the goodwill according to the condition of agreement and then goodwill will open with agreed value int the books
Treatment of Assets and liabilities not taken by new firm
If assets and liabilities are not taken by new firm , then these item will transfer to the capital accounts of partners of old firm and we close these accounts

A -Treatment of assets and liabilities taken by new firm (In the books of old partners)

a) For closing the account of assets
New Firms Account Debit
Assets Account Credit ( at revalued value)
b) For closing the accounts of liabilities
Liabilities Account Debit
New Firm Account Credit
Closing the accounts of partners capital
Partner’s capital account Debit
New Firms Account Credit
B – In the books of new firm
Assets Account Debit
Liabilities Account Credit
Partner’s capital Account Credit



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