After the formation of the new merged/ amalgamated company, there are some necessary entries that are required to be passed. All the assets and liabilities are recorded in the new company and share capitals are recorded according to the purchase consideration. We will explain this process using the same example from our previous topics of amalgamation.
Example Question
Two companies Alpha and Beta are in the same line of business. They have decided to merge and form a new company Gamma. Gamma will take all the assets and liabilities of the old companies and that the Gamma will be paid $10 share to the value of net assets for each of the old companies. The Balance sheet of Alpha and Beta are as follows:
Balance Sheet
| Alpha | Beta | |
| Assets | ||
| Machinery | 180,000 | 200,000 |
| Property | 190,000 | 150,000 |
| Patents | 30,000 | – |
| Inventory/ Stock | 150,000 | 90,000 |
| Accounts Receivable | 48,000 | 70,000 |
| Cash | 22,000 | 50,000 |
| Profit & Loss | 10,000 | – |
| Total | 630,000 | 560,000 |
| Equities | ||
| Share capital | 500,000 | 400,000 |
| Accounts payable | 80,000 | 50,000 |
| Notes Payable | 50,000 | – |
| Profit and loss | – | 20,000 |
| Reserve fund | – | 90,000 |
| Total | 630,000 | 560,000 |
Required
Journal entries in the book of Gamma,
Solution Answer
| Description | Debit | Credit |
| Machinery | 180,000 | |
| Property | 190,000 | |
| Patents | 30,000 | |
| Inventory/ stock | 150,000 | |
| Accounts receivable | 48,000 | |
| Cash | 22,000 | |
| Accounts payable | 80,000 | |
| Notes payable | 50,000 | |
| Payable to Alpha | 490,000 | |
| Payable to Alpha | 490,000 | |
| Share capital | 490,000 | |
| Machinery | 200,000 | |
| Property | 150,000 | |
| Inventory/ Stock | 90,000 | |
| Accounts receivable | 70,000 | |
| Cash | 50,000 | |
| Accounts Payable | 50,000 | |
| Payable to Beta | 510,000 | |
| Payable to Beta | 510,000 | |
| Share capital | 510,000 | |