Question

When two firms amalgamate, general reserve is transferred to:

• A. New firm's account
• B. Revaluation account
• C. Partner's account
• D. Equal Ratio

Answer 1

Answer: (C)

Partner's account

When two or more partnership firms are amalgamated, the books of old firm are closed and books of new firm are opened.

While closing the books of the old firm :

1. Each firm should prepare a revaluation account relating to its own assets and liabilities and transfer the balance to the partner's capital account in the profit sharing ratio.

2. Entries of raising goodwill should be passed.

3. Transferring reserve to old partners capital account in old ratio.

4. Assets and liabilities not taken over by the new firm should be transferred to the capital accounts of partners in the ratio of their capitals.

5. The new firm should be debited with the difference between the value of assets and liabilities taken over by it; the assets should be credited and the liabilities debited.

6. Partner's capital account should be transferred to the new firm's account.