2.1.1 Closing the books of old firm (a) Each firm should prepare a Revaluation Account relating to its own assets and liabilities and transfer the balance to the partners' capital accounts in the profit-sharing ratio. (b) Entries for raising goodwill should be passed, (c) Assets and liabilities not taken over by the new firm should be transferred to the capital accounts of partners in the ratio of their capitals. (d) The new firm should be debited with the difference between the value of assets and liabilities taken over by it, the assets should be credited and liabilities debited. (e) Partners' capital accounts should be transferred to the new firm's account: 2.1.2 Opening the books of the new firm Debit assets taken out at the agreed values Credit the liabilities taken over, and Credit individual partner's capital accounts with the closing balances in the erstwhile firm When one firm is merged with another existing firm, entries will be in the pattern of winding up in the books of the firm which has ceased exist. The other firm will record the transaction as that of a business purchase. Illustration 1 B and S are partners of S & Co. sharing profits and losses in the ratio of 3:1. S and T are partners of T & Co. sharing profits and losses in the ratio of 2:1. On 31st October, 2012, they decided to amalgamate and form a new firm Ms. BST & Co. 024 wherein B, S and T would be partners sharing profits and losses in the ratio of 3:2:1 Their balance sheets on that date were as under: Liabilities S & CO T & CO Assets S& Co. T&Co Due to X & Co. 40,000 Cash in hand 10,000 5,000 Due to S & Co 50.000 Cash at bank 15.000 20,000 Other Creditors 60.000 58,000 Due from T & Co. 50.000 Reserves 25.000 50,000 Due from X & Co. 30,000 Capitals Other Debtors 80,000 1,00,000 B 1,20,000 Stock 60,000 70,000 S 80,000 1,00.000 Fumiture 10.000 3,000 T 50.000 Vehicles 80,000 Machinery 75.000 25,000 3.25.000 3.08.000 3.25.000 3,08,000 The amalgamated firm took over the business on the following terms: (a) Goodwill of S& Co. was worth 60.000 and that of T & Co. 750,000. Goodwill account was not to be opened in the books of the new firm, the adjustments being recorded through capital accounts of the partners. (b) Building, machinery and vehicles were taken over at 350,00090,000 and 1,00,000 respectively. (c) Provision for doubtful debts has to be carried forward at 4.000 in respect of debtors of S& Co. and 75,000 in respect of debtors of T & Co. You are required to: (0) Compute the adjustments necessary for goodwill. () Pass the journal entries in the books of BST & Co. assuming that excess/deficit capital (taking T's Capital as base) with reference to share in profits are to be transferred to Building Current accounts