Explanation

When two sole trading businesses come together to form a partnership, this is called an amalgamation. Amalgamation specifically refers to the merging of two or more businesses into a single new entity.

In an amalgamation, the original businesses cease to exist as separate entities. Their assets and liabilities are combined, and a new partnership is formed with the former sole traders becoming partners.

This is different from an acquisition, where one business takes over another but both might continue to exist in some form. Association is a general term for people or businesses working together. Combination is too vague a term.

When sole traders amalgamate to form a partnership, they must agree on how to value their respective contributions, decide profit-sharing ratios, and prepare opening entries for the new partnership books.