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CMA Intermediate · Financial Accounting · Amalgamation of Partnership Firms

When two partnership firms amalgamate to form a new firm, which of the following is the usual first step in the accounting procedure before the books of the new firm are opened?

The usual first step is revaluing the assets and liabilities of each old firm at agreed values through a Revaluation Account, with the resulting profit or loss shared by the old partners in their old ratio, so that balances are fair before the new firm's books are opened.

  1. ARevaluing the assets and liabilities of each old firm and settling the agreed adjustments through the Revaluation Account and partners' capital accountsCorrect
  2. BClosing the books of the new firm at the end of its first year
  3. CIssuing shares to the partners of both firms
  4. DDistributing the capital of each firm among its creditors

Explanation

Before amalgamation, each firm usually revalues its assets and liabilities at agreed values. The resulting profit or loss goes to the old partners' capital accounts in their old ratio. The other options do not belong to the pre-amalgamation procedure of partnership firms.

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