profit on inter firm sale during amalgmation

According to me, no entry in the books of A & B.

In the amalgamating firm AB, foll. entries will be passed:

1. Goodwill A/c Dr.  500

    To Stock A/c 500

    (to cancel the profit element on goods lying unsold)

2. Creditors A/c Dr. 1000

     To Debtors A/c 1000

     (to cancel the inter firm debt)

Firm A sold goods to Firm B costing Rs 1000 at Rs 2000. Assuming, Firm B is purchasing the business of Firm A (amalgamation taking place as per AS 14)

So Firm A is Vendor Company & Firm B is purchasing company.

Close the books as usual in both the company. In other words, pass entries in both companies as you do normally.

Pass one extra entry in the books of purchasing company. This entry is passed to remove the profit margin which was included by Firm A while selling its stock at Rs 2000. It is done because now (after amalgamation) both will be one Company.

Entry in the books of Firm B (removal of unrealized profit):-

Goodwill A/c (in case of purchase) / P&l A/c (in case of merger)       Dr.

           To Stock A/c.

- FA