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Saturday, November 02, 2013

Amalgamation of Firms

Amalgamation of firms takes place when two or more firms working independently merge their business into a single unit. The firms engaged in identical business combine their business activities and form into a new firm know as amalgamated firm.

Amalgamation may take place between: 
                (1) Two or more sole trading concerns.
                (2) One or more sole trading concerns and a partnership firm.
                (3) Two or more partnership firms.
                (4) Any other type of firms with any permutation combination.

The result of amalgamation is that the combining units lose their independent identity (either as a sole trading concern or as old partnership firm) and the proprietors or the partners of the combining firms become the partners of the new firm.

Objectives of amalgamation are: 
                (1) To achieve the economies of large scale operations.
                (2) To avoid cut throat competition.
                (3) To increase capital.
                (4) To enhance the efficiency of the firm by utilising the different talents of the partners.
                (5) To maximize profits to economies of production.
                (6) To minimize the cost of production to large-scale production.
                (7) To establish monopoly in a particular trade.

The process of amalgamation involves two stages of operations: 
                (1) Closing down the amalgamating firms, which have agreed to merge. For this purpose the assets & liabilities of the amalgamating firms should be revalued to ascertain the worth of capital to be transferred to the new firm.
                (2) Opening the books of the new firm.