ACT 3121 Intermediate Financial Accounting 1 G 2

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ACT 3121Intermediate Financial Accounting 1G -
2

• Lecture 6 (17th Dec)
• 2 hrs

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(B) Amalgamation

• Ways of amalgamation
• 2 SOLE traders decide to form a partnership
• 1 existing partnership amalgamate with a sole
  trader
• 2 existing partnership decided to join together
  and form one firm

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Matters that need attention

• Revaluation of assets
• Goodwill
• Admission or retirement?
• Interest of all parties involved in the
  amalgamation
• Liabilities
• Capital
• Scope of new business

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The accounting procedure

• Open an account for each asset and liability
  appearing in the balance sheet
• Calculation of Goodwill
• Revaluation of assets
• Balance sheet of pre-amalgamation
• Amalgamation
• Not all will apply, depends on situation

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(C) Sale of a partnership to a limited company

• Taken over or turn partnership into a limited
  company
• Purchase consideration price paid by the
  acquiring company
• Nature of purchase consideration
• By payment in cash
• By the issue of shares in the company
• By the issue of debentures

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Division of shares

• Profit-sharing ratio
• Amounts standing to the credit of their
  respective Capital Accounts
• ? If a combination of cash and shares, the
  balance outstanding will be cleared by cash

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Unrealisable assets

• Divide book value of assets with profit sharing
  ratio and close the accounts
• When property sold, the proceed will be divided
  in their profit sharing ratio
• ? purely private matter

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Entries in the book of partnership

• Revaluation due to the proposed of sale
  Revaluation a/c
• Close Revaluation a/c partners Capital a/c
• Close all assets a/cs Dt. Realisation a/c
• Liability taken over Cr. Realisation a/c
• Open an account with the company name and debit
  it with the amount of purchase consideration
  Cr. Realisation a/c

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• 6. Companys personal a/cs credited with full
  amount of purchase consideration, showing in
  detail how much of it is being settled
• In cash
• By Shares
• (Debit the associated a/cs cash , shares )
• 7. Divide shares between partners in the agreed
  proportion Dt. partners Capital a/cs, Cr.
  Shares a/c
• 8. Clear partners capital balance with what left
  in Bank a/c close Capital a/c