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ACCOUNTING

FOR
AMALGAMATION
NEHA GARG
ASST. PROF., COMMERCE
OVERVIEW
 MEANING
 Important terms
 Amalgamation in the nature of
merger
 Amalgamation in the nature of
purchase
 Statutory reserves
 Difference between Merger &
Amalgamation
 difference between pooling of
interest method and purchase
method
 dissenting shareholders (sec 236)
 inter company owings
WHAT IS A MERGER?
 Merger is one in which the assets and liabilities of a
Company gets vested in another Company, the
Company which is merged, losing its identity and
the shareholders of the merged Company becoming
the shareholders of the other Company.
 Eg: An already existing Company A merging with
Company B, wherein all the assets and liabilities of
Company A vests in Company B and Company A
shall no longer be in existence after the merger.
Moreover all the shareholders of Company A shall
become the shareholders become the shareholders
of Company B.
WHAT IS A MERGER?
 When two or more companies are combined
into one by way of merger or taking over by the
other, it is called amalgamation.
 Amalgamation may be of two types
 Amalgamation in the nature of merger, and

 Amalgamation in the nature of purchase


IMPORTANT TERMS
Merger-
Where Assets and Liabilities of one company
are transferred to another and the first
company loses its existence
 Amalgamation-
Where two or more companies merge into a
third new company and the existing co.s lose
their existence
IMPORTANT TERMS
 Transferor/Vendor Company : The company
which is merged to or taken over or absorbed
by another company. It is the company which
sells its business.
 Transferee/Vendee Company : The company
which takes over or absorbs another company.
It is the company which purchases business of
another company.
AMALGAMATION IN THE NATURE OF MERGER

Following conditions must be satisfied:


1. All assets and liabilities of transferor
company become assets and liabilities of
transferee company
2. Shareholders of not less 90% of the shares
in transferor company get Eq. shares in the
transferee company. Cash may be paid for
fractional shares.
AMALGAMATION IN THE NATURE OF MERGER

3. Business of transferor company carried on


by transferee company.
4. No adjustment for value of assets and
liabilities of transferor company made in the
books of transferee company unless it is
required to maintain uniformity in
accounting policy.
AMALGAMATION IN THE NATURE OF PURCHASE

 When any one or more of the condition for


amalgamation in the nature of merger is
followed, it is called amalgamation in the
nature of purchase.
IN SHORT:
AMALGAMATION IN THE NATURE OF MERGER:
COMPANY A + COMPANY B=COMPANY C (NEW
COMPANY)
AMALGAMATION IN THE NATURE OF PURCHASE:
1. COMPANY A ABSORBED BY COMPANY B

2. COMPANY A & B ABSORBED BY COMPANY C


ETC.
STATUTORY RESERVES

 Reserve which is created / retained due


to applicability of laws/acts, is called
statutory reserve.
 Example : Development Rebate Reserve,
Investment Allowance Reserve, Export
Profit Reserve, Workmen’s Compensation
Reserve Etc.
DIFFERENCE BETWEEN MERGER &
AMALGAMATION
DISSENTING SHAREHOLDERS (SEC 236)
 The dissenting shareholder includes a
shareholder who has not assented to the
scheme or contract and any shareholder who
has failed or refused to transfer his shares to
the transferee company in accordance with the
scheme or contract.
 In such a case, the paid up capital held by
dissenting shareholders must be transferred to
a separate shareholders’ account.
 Any excess amount paid to them is transferred
to realisation account.
DISSENTING SHAREHOLDERS (SEC 236)
 As per the provisions of the Act, the shares of
dissenting shareholders may be acquired by
the vendor company:
1. On the same terms on which willing
shareholders passed on their shares
2. On the terms agreed between the vendor
company & dissenting shareholders.
3. On the terms ordered by the court on an
application made either by the vendor
company or the dissenting shareholders.
INTER COMPANY OWINGS
 Intercompany Debt - Eliminates any loans
made from one entity to another within the
group, since these only result in offsetting
notes payable and receivable, as well as
offsetting interest expense and interest
income.
Treatment in Books of Transferee Company:
 Cancellation Of Common Debts:
Intercompany debts represented by common
debtors and/ or bills of exchange or loan are
cancelled by passing an additional entry in
the books of the transferee company.
INTER COMPANY OWINGS
The Journal entries are as follows.
 In case of loan:
Loan (from one company) A/c Dr.
To Loan (to other company) A/c
 In case of bills:
Bills payable (of one company) Dr. [with common
part of B/R and B/P]
To Bills Receivable (of other company)
 In case of debtors and creditors:
Creditors (of one company) Dr.
To Debtors (of other company)
INTER COMPANY OWINGS
 Cancellation of Unrealized Profit:
If certain goods were purchased by the transferor
company from the transferee company and remain
unsold at the time of acquisition of business then
the unsold stock of Transferor Company becomes
the part of stock of the transferee company. Since
Transferee Company had sold the goods at “cost
plus profit” the same cannot be taken back or
included in the stock at this price. Hence the profit
element which is included in the unsold stock of
the transferor company is treated as unrealized
profit and has to be eliminated there from.
INTER COMPANY OWINGS
 The journal entry required for this is:
(i) Profit and Loss A/c Dr. [in case of merger]
To Stock A/c
(ii) Goodwill A/c [in case of amalgamation in the
nature of purchase]
To Stock A/c
OR
Capital Reserve A/c
To Stock A/c
Thank You!!

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