Example 1

D Savage and E Platt are sole traders; their Statement of Financial Position at 31 December Year 5
were as follows:
D Savage E Platt
Statement of Financial Position Statement of Financial Position
As At 31 December Year 5 As At 31 December Year 5
RM RM RM RM
Non-Current Assets Non-Current Assets
Freehold Premises 100,000 Furniture and Fittings 12,000
Furniture and Fittings 15,000 Motor Vehicles 14,600 26,600
Motor Vehicles 8,500 123,500
Current Assets
Current Assets Inventory 4,200
Inventory 7,500 Account Receivables 4,800
Account Receivables 9,600 Balance Bank 2,700
Balance at Bank 4,400 11,700
21,500 Less: Current Liabilities
Less: Current Liabilities Account Payables 4,300 7,400
Account Payables 5,000 16,500 34,000
140,000 Financed by:
Financed by: Capital 34,000
Capital 140,000

Savage and Platt decided to merge their business and form a partnership with effect from 1 January
Year 6, sharing profits and losses 4:1 respectively. Some of the assets were re-valued at the following
valuations:
Savage Platt
RM RM
Freehold Premises 120,000 --
Furniture and Fittings 12,500 10,000
Motor Vehicles 7,000 12,000
Inventory 6,500 3,500
Allowance For Doubtful Debts 240 120

The goodwill for each of the sole traders should be valued at 2 years’ purchase of the average profit
and loss of the last 3 years. Profits and losses for the years to 31 December Year 5 were as follows:

Savage Platt
RM RM
Year to 31 December, Year 2 9,200 8,100
Year to 31 December, Year 3 10,300 7,400
Year to 31 December, Year 4 6,100 (6,400)
Year to 31 December, Year 5 (7,400) 5,000

Goodwill was to remain as an asset in the books of partnership. The partners agreed to bring in
sufficient money to be paid into the partnership Bank Account, to make Savage’s capital up to
RM160,000 and Platt’s capital up to RM40,000.

REQUIRED:
Prepare the following in the books of partnership:
(a) Opening Journal entries to record the amalgamation.
(b) Capital Account of Savage and Platt in columnar form.
(c) Partnership’s Statement of Financial Position as at 1 January Year 6
Example 2
Two sole traders, Tiger and Lion, decide to merge their business as from 31 December 2007. Their
Statement of Financial Position was shown as follows:

Statement of Financial Position of Tiger

RM RM RM
Motor Vehicles 8,400 Capital 13,000
Furniture 2,200 Account Payables 1,820
Inventory 1,420 Accrued Expenses 1,000
Cash at Bank 3,300
Account Receivables 650
Less: Allowance for
Doubtful Debts 150 500__ ______
15,820 15,820

Statement of Financial Position of Lion

RM RM
Furniture 4,560 Capital 8,500
Inventory 2,800 Account Payables 300
Cash at Bank 1,940 Accrued Expenses 500__
9,300 9,300

The new partnership firm will take over all the assets and liabilities after the following adjustments:
(1) Tiger’s motor vehicles to be re-valued at RM7,000;
(2) The allowance for doubtful debts to be re-adjusted to 30% of debtors’ balance.
(3) Tiger and Lion’s inventory to be reduced in value by 10%.
(4) The goodwill had been created by Tiger and Lion at RM1,400 and RM1,000 respectively. It was
decided that the goodwill account should not maintained in the partnership books.
(5) Both traders were to pay off their accrued expenses from their own bank accounts.
(6) Both traders were to transfer the balances in the respective bank accounts to the partnership’s
bank account.
(7) The capital of the new firm to be RM21,000 and was to be provided by Tiger and Lion at their
profits and losses sharing ratio, 2:1. Any balance due to or by the partners was to be paid by
cheque. The capital adjustment would be made the following date.

REQUIRED:
Prepare the following for the partnership:
(a) The Journal entries to record the above transactions.
(b) The Capital Accounts of Tiger and Lion, in columnar form.
(c) The Statement of Financial Position as at 1 January 2008.
Example 3
Ang and Beh were both traders who carried on a drapery Business. They decided to amalgamate their
operations and form a partnership on 1 January 2013. Their respective Statement of Financial Position as at 31
December 2012 was as follows:

Ang Beh Ang Beh

RM RM RM RM
Capital 39,000 10,000 Motor Vehicles 26,500 --
Bank Loan -- 1,100 Fixtures and Fittings 1,500 1,600
Account Payables 950 800 Office Equipment 4,500 7,765
Rent Due 150 70 Inventory 2,800 3,150
Bank Overdraft --- 2,565 Account Receivables 2,500 2,020
______ ______ Cash at Bank 2,300 ----___
40,100 14,535 40,100 14,535_

a) It was agreed that the new firm was to take over all the assets and liabilities except bank loan belonged
to Beh. Beh should pay off the bank loan from his private resources.

b) Both traders were to pay off their rent due from their own bank accounts, and both traders were to
transfer the balances in the respective bank accounts to the partnership’s bank account.

c) Goodwill for each business should be valued at two years purchase of the average profits of the
previous three years. It was agreed that goodwill account should not be kept in the partnership’s books.

d) Revaluation were to be made as follows:

Ang Beh
RM RM
Motor Vehicles 28,000 ---
Fixtures and Fittings 400 500
Inventory 2,730 3,100
Bad Debts 200 120

e) Allowance for bad debts was to be provided at 5% of account receivables in both cases.

f) Ang paid off the bank overdraft of Beh brought in.

g) The capital of the new firm to be RM50,000 and was to be provided in their profit and loss sharing ratio.
Any balance due was to be paid in by cash and any surplus was to be converted to Loan account, and
this adjustment will be made on the same date.

h) Profits and losses for the years to December 31, 2012 were as follows:

Ang Beh
RM RM
Year to December 31, 2009 9,200 8,100
Year to December 31, 2010 6,300 7,400
Year to December 31, 2011 10,500 6,300
Year to December 31, 2012 12,000 (800)

i) Future profits and losses were to be shared:

Ang 75%; Beh 25%

REQUIRED:
(a) Prepare the Opening Journal Entries of partnership on 1 January 2013.
(b) Prepare the Statement of Financial Position of the new firm as at 1 January 2013
Example 4
Tong and Tang were equal partners in partnership as Tong & Tang, the partnership agreed to
amalgamate its business on 1 January 2005 with Ling Trading. The new partnership was known as
Perkongsian Lintong. The Statement of Financial Position for both businesses as at 31 December 2004
were shown as follows:

Ling Trading Tong & Tang Ling Trading Tong & Tang
RM RM RM RM
Assets Liabilities
Building 50,000 20,000 Mortgage Loan 10,000 ----
Equipment 7,000 4,400 Bank Overdraft ---- 1,500
Inventory 4,600 3,200 A/c Payables 4,100 3,000
A/c Receivables 4,400 3,900 Accrued Expenses 500 ---
Cash at Bank 5,600 ---- Capital A/c 57,000 24,000
______ Current A/c ______ 3,000_
71,600 31,500 71,600 31,500

The terms and conditions should be taken into consideration as follows:

(a) The partnership should take over all the assets and liabilities of the two businesses with the
exception for the mortgage loan and accrued expenses of Ling Trading. Both two liabilities
should be discharged by Ling Trading by his private resources.

(b) Goodwill is to be valued at RM3,000 for Ling Trading and RM5,000 for Tong & Tang
Partnership. The goodwill should not be retained in the new partnership’s books.

(c) Equipment is reduced in value by 10% in both cases.

(d) Bad debts RM200 should be written off and allowance for doubtful debts is to be provided at
10% in both cases.

(e) The rest of the assets and liabilities will be taken over by new firm at the book value.

(f) For Tong & Tang partnership, the balances on partners’ current accounts should be transferred
to their capital accounts before any adjustment.

(g) The new partnership would operate in a sum of RM120,000 for which each partner should
contributed according to their profits and losses sharing ratio. Any difference would be
contributed or withdrawn by partners to meet the capital requirement.

(h) Ling, Tong and Tang shared future profits and losses at the ratio of 2:1:1.

Note: The balances of Capital Account and Current Account of Tong and Tang in their old
business were as follows:
Capital Account Current Account
Tong RM14,000 RM2,000
Tang RM10,000 RM1,000

REQUIRED:
(a) In the books of Tong & Tang Partnership:
(i) Revaluation Account
(ii) Partners’ Capital Account in columnar form
(b) In the books of Perkongsian Lintong:
(i) Opening Journal entries
(ii) Partner’s Capital Account in columnar form.
(iii) Statement of Financial Position as at 1 January 2005.