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CMA Intermediate · Financial Accounting · Amalgamation of Partnership Firms

Before two partnership firms amalgamate, each firm revalues its own assets and liabilities. In the books of each old firm, the resulting profit or loss on revaluation is:

The revaluation profit or loss is shared among the old firm's partners in their old profit-sharing ratio, because it relates to the period before amalgamation. It is credited or debited to their capital accounts in the old firm's books, not in the new ratio.

  1. ATransferred to the old partners' capital accounts in their old profit-sharing ratioCorrect
  2. BTransferred to the old partners' capital accounts in the new firm's profit-sharing ratio
  3. CCarried to the new firm's Goodwill Account
  4. DAdjusted only against the combined reserves of both firms

Explanation

The Revaluation Account belongs to the old firm and measures gains or losses up to the date of amalgamation. These were earned under the old agreement, so they are shared in the old profit ratio. Using the new ratio would shift value between partners that was earned before the merger.

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