POA Chapter 17- Amalgamation.

1.        What is Amalgamation?

Two or more businesses combine together to form a new business entity.

Reasons:

1.     To pool resources and expertise.

2.     To reduce costs.

3.     To become a stronger force.

4.     To reduce competition.

2.        Revaluation of business before Amalgamation:

            i.      Revaluation of Assets of the entries:

Reason:

-So that partners of the new business can agree on the values of the assets that they are willing to accept as the capital contribution of each partner.

-Two concepts:

1.  Going concern concept: Business is assumed to operate indefinitely unless there are signs that it has to stop operating.

2.   Historical cost concept: All business transactions are to be recorded at its original cost.

Recording:

-Gain from revaluation of assets: Dr Asset, Cr Capital (Asset increase, Capital increase)

-Loss from revaluation of assets: Dr Capital, Cr Asset (Asset decrease, Capital decrease)

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