AMALGAMATION

ABSORBTION
AND
RECONSTRUCTION
A PRESENTATION ON
MEANING OF AMALGAMATION
Amalgamation is a form of combination.
It is brought about by the fusion of blending
of two or more undertakings carrying on the
same type of business ,or engaged in the
same line of business activity.
OBJECTIVES OF AMALGAMATION
a) Elimination of competition
b) Production of goods and services on a large
scale
c) Securing a large share of a market
d) Maintaining price by regulating output
e) Equitable distribution of what is produced
OBJECTIVES CONTD
f) Building up goodwill
g)Securing economies of scale such as
technical,financial,managerial and
marketing
h)Avoiding duplications and reducing costs
i) Introducing schemes of rationalisation
j) Promoting research and development
AMALGAMATION AND ABSORPTION
Although absorption is brought about by the
merger of one or more companies with an existing
company, and result is one liquidation.
amalgamation is of two types amalgamation in
the nature of merger and amalgamation in the
nature of purchase
TERMS USED IN AS-14
a) AMALGAMATION means an amalgamation
pursuant to the provisions of the company
act,1956.
b)TRANSFEROR COMPANY means the
company which is amalgamated into another
company
c) TRANSFREE COMPANY means the company
into which the transferor company is
amalgamated
TERMS USED IN AS-14 CONTD.
d)CONSIDERATION for the amalgamation means
the aggregate of the shares and other securities
issued and payment made in the form of cash or
other assets by the transferee company to the
shareholders of the transferor company.
AMALGAMATION IN THE NATURE OF
PURCHASE
An amalgamation ,as per the accounting
standard (as-14) ,should be considered to
be in the nature of purchase, when any one
or more of the conditions for an
amalgamation in the nature of merger
specified above is not satisfied.
PURCHASE CONSIDERATION
CONSIDERATION FOR THE AMALGAMATION MEANS
THE AGGREGATE OF THE SHARES AND OTHER SECURITIES
ISSUED AND THE PAYMENT MADE IN THE FORM OF CASH
OR OTHER ASSETS BY THE TRANSFERRE COMPANY TO THE
SHARE HOLDERS OF THE TRANSFEROR COMPANY.

Purchase consideration should comprise shares and
other securities issued as well as cash payment to the
shareholders of the transferor company but not made any
payment made to liquidate.
NET ASSETS METHORD
Net assets being excess of assets over
liabilities taken over ,if purchase
consideration is to be ascertained under the
net assets method ,it is necessary to
determine the fair value of such of those
assets and liabilities as are actually taken
over.
TREATMENT OF LIABILITIES
The liabilities to be deducted from out of the total assets
taken over by the transferee company are only outside or
liabilities to third parties.

These include trade liabilities such as sundry creditors
and bills payable , outstanding liabilities for expenses
,secured and unsecured loans such as debentures and
bank overdraft ,liabilities to workmen such as workmens
savings deposits ,provident fund ,profit -sharing fund,
gratuity fund ,etc.

TRANSFEROR COMPANY JOURNAL
ENTRIES
i. for transfer of assets taken over:
realisation A/c
to each asset A/c

Dr.
(with total)
(with book value)
ii. For transfer of liabilities of liabilities taken over:
each liability A/c
to realisation A/c

Dr.
(with book value)
(with total)
iii. For purchase consideration due:
transferee company A/c
to realisation A/c
Dr.
(with the amount agreed upon)
iv. For expenses of realisation:
realisation A/c
to bank A/c
(when paid for by the transferor company)
Dr.
(with the amount paid)
TRANSFERRE COMPANY JOURNAL
ENTRIES( POOLING OF INTEREST
METHOD)
i. For purchase consideration due
business purchase A/c
to liquidator of transferor company
Dr.
ii. For taking over assets and liabilities
each asset A/c
to each asset A/c
to provision A/c
to profit and loss A/c
to reserve A/c
to business purchase A/c

Dr.
(with book value)
(with book value)
(with book value)
(with book value)
(with purchase consideration)





iii. for payment of purchase consideration
liquidator of transfer Co. A/c
to share capital A/c
to share premium A/c
to bank A/c
Dr. (with purchase consideration)


(for fractional shares or
Dissenting shareholders)
iv. For realisation expenses borne:
liquidation expenses A/c
to bank A/c
Dr.
Profit and loss A/c
to liquidation expenses A/c
Dr.
v. For formation expenses:
preliminary expenses A/c
to bank A/c
Dr.
PURCHASE METHOD JOURNAL
ENTRIES
i. For purchase consideration due:
business purchase A/c
to liquidator of transferor Co.
Dr.
ii. For assets and liabilities taken over:
each asset A/c
to each liability A/c
to business purchase A/c
Dr.
(fair value)
(fair value)
iii. for discharge of purchase consideration:
liquidator of transferor Co. A/c
to share capital A/c
to share premium a/c
to debentures A/c
to bank A/c


Dr.
iv. For realisation expenses borne:
goodwill A/c
to bank A/c
Dr.
(with the expenses)
v. For preliminary expenses:
preliminary expenses A/c
to bank A/c
Dr.
Companies A and B engaged in a similar
business, agreed to amalgamate on 1
st
April
2003.their position on 31
st
march 2003 was as
follows
CALCULATION OF PURCHASE CONSIDERATION
A CO. LTD.
1,500 shares of Rs 50 each
Rs 25 paid up
Reserve
Creditors
Profit and loss A/c
Rs
37,500
2,750
1,750
1,000
43,000
Land
Machinery
Stock
Debtors
Cash
goodwill
6,000
9,750
7,500
4,000
750
15,000
43,000
B CO.LTD
1,500 Shares of Rs
50 each. Rs 25 paid
up
Depreciation fund
Creditors
Profit and Loss A/C

Rs
25,000

1,250
1,750
1,250


Land
Machinery
Stock
Debtors
Cash
Rs
6,900
12,500
6,000
2,600
1,250
29,250 29,250
The assets and liabilities are to be transferred at
book figures to the company .the capital of the
new company is to be Rs 1,00,000 divided into
10,000 equity shares of Rs 5 each and 10,000
preference shares or Rs 5 each. The new
company issued all the equity shares and
preference shares to the extent necessary to the
members of A and B companies.6,500 preference
shares were taken up by the public at par and
were fully paid. Compute the purchase
consideration
solution:
A co ltd
Land
Machinery
Stock
debtors
Cash
Goodwill
assets taken over
less: liabilities:
creditors
depreciation fund
purchase consideration

Rs
6,000
9,750
7,500
4,000
750
15,000

43,000
1,750

41,250


B co ltd
Rs
6,900
12,500
6,000
2,600
1,250


29,250

3,000
26,250

1,750
1,250