AMALGAMATIONS
Two sole traders and a partnership,two or more partnerships or a sole trader and other partnerships may combine or join together to forma a single partnership.
The benefit of amalgamation includes:
- An expansion of the capital base
- Wider pool of experts
In accounting, for amalgamation, the process involves closing off the books of the individual partnerships or businesses and preparing the opening balance sheet of the newly combined business. The process of closing the books of individual businesses follows the same procedure as that of dissolutions but instead of assets being sold, they are being taken over in the new business.
Therefore a realization account is opened whereby the book values of the assets are debited and newly agreed values are credited. The balance of the realization account represents a profit or loss on amalgamation which is closed off to the capital accounts according to the old profit sharing ratio.
The capital required by each partner in the new business should be balance carried down (c/d) in the partners capital accounts. The balancing figures it the capital accounts will be the cash that will be either paid out or introduced by a partner.
The remaining cash in an individual business will now be transferred to the newly combined business.