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CMA Intermediate · Financial Accounting · Amalgamation of Partnership Firms

Rao & Co. and Iyer & Co. merge into a new firm with total agreed capital of ₹6,00,000, to be shared by Rao's partners and Iyer's partners in the ratio 3:2. Net assets brought in by Rao & Co. at agreed values are ₹3,90,000. What adjustment is needed for Rao & Co.'s partners to reach their agreed capital?

Rao & Co.'s agreed capital is ₹3,60,000 (3/5 of ₹6,00,000), while its net assets brought are ₹3,90,000. The ₹30,000 excess is returned to the partners as a cash withdrawal.

  1. ABring in ₹30,000 cash
  2. BWithdraw ₹30,000 cashCorrect
  3. CWithdraw ₹90,000 cash
  4. DBring in ₹90,000 cash

Explanation

Rao's agreed capital = 6,00,000 × 3/5 = 3,60,000. Net assets brought are 3,90,000, which exceeds the required capital by 30,000. The excess is withdrawn in cash. Bringing in cash would be correct only if the net assets were less than the agreed capital.

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