• What is “Amalgamation”?

Amalgam

• Difference b/w mergers, acquisitions takeover, amalgamation.

• Merger: a+b = a

Acquisition: a + b = c

• Types of Takeovers
General Guidelines

Takeover

– The transfer of control from one ownership group to another.

Acquisition

– The purchase of one firm by another

Merger

– The combination of two firms into a new legal entity

– A new company is created

– Both sets of shareholders have to approve the transaction.

Amalgamation

– A genuine merger in which both sets of shareholders must approve the transaction

– Requires a fairness opinion by an independent expert on the true value of the firm’s
shares when a public minority exists

– Why “Amalgamation”?

• Classifications Mergers and Acquisitions

1. Horizontal

• A merger in which two firms in the same industry combine.

• Often in an attempt to achieve economies of scale and/or scope.

2. Vertical

• A merger in which one firm acquires a supplier or another firm that is closer to its
existing customers.
 • Often in an attempt to control supply or distribution channels.

3. Conglomerate

• A merger in which two firms in unrelated businesses combine.

• Purpose is often to ‘diversify’ the company by combining uncorrelated assets and

income streams

4. Cross-border (International) M&As

• A merger or acquisition involving a Canadian and a foreign firm a either the acquiring or
target company.

• AS-14 “Accounting for Amalgamations

AS-14 defines Amalgamation

• Amalgamation in the Nature of Merger

1. All the assets and liabilities of the transferor company become after the amalgamation the
assets and liabilities of the transferee company

2. Shareholders holding not less than 90% of the face value of the equity shares of the transferor
company becomes the equity shareholders of the transferee company by virtue of the
amalgamation

For the purpose of computing 90% exclude the Shares already held prior to amalgamation by:

a) Transferee company in the transferor company

b) one or more subsidiaries of the transferee company in the transferor company

c) Nominees of the transferee company in the transferor company.

• Amalgamation in the Nature of Merger

3. The consideration for the amalgamation receivable by those equity shareholders of the
transferor company who agree to become shareholders of the transferee company is discharged
by the transferee company wholly by the issue of equity shares in the transferee company,
except that the cash may be paid in respect of fractional shares.

4. The business of the transferor company is intended to be carried on, after the amalgamation, by
the transferee company.

5. No adjustments is intended to be made to the book values of the assets and liabilities of the
transferor company when they are incorporated in the financial statements of the transferee
company except to ensure uniformity of accounting policies.
 • Amalgamation in the nature of Purchase

AS-14

“An amalgamation should be considered to be an amalgamation in the nature of purchase,

when any one or more of the conditions specified in paragraph 29 is not satisfied.”

• Transactions & Events in Amalgamation

• Determination of Purchase Consideration (PC)

• Accounting in the books of the transferor company

• Accounting in the books of the transferee company.

• Determination of PC

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 transferee company to the shareholders of
the transferor company.

PC = Shares + Other Securities + Cash or other assets

• Computation of PC

Computation

• In the books of Transferor Company

(Transactions & Events)

1. Assets & Liabilities transferred

2. Settlement of assets & liabilities not taken over by transferee company.

3. Purchase consideration due

4. Purchase consideration received

5. Realisation expenses

6. Amount due to shareholders

7. Settlement of shareholders due

• Accounting in the books of transferor company

Assets & Liabilities transferred

Realisation A/c Dr. (BV)

 To Assets A/c (BV)

Liabilities A/c Dr. (BV)

To Realisation A/c (BV)

• Accounting in the books of transferor company

Settlement of Assets & Liabilities not taken over

Bank A/c Dr.

Realisation A/c Dr. (assuming Loss)

To Assets A/c

Liabilities A/c Dr.

To Bank A/c

To Realisation A/c (Discount if any)

• Accounting in the books of transferor company

PC Due

Transferee Company A/c Dr.

To Realisation A/c

PC Received

Shares/Sec. in transferee co A/c Dr.

Bank A/c Dr.

To Transferee Co. A/c

• Accounting in the books of transferor company

Realisation Expenses

• Accounting in the books of transferor company

Amount due to Shareholders

Share Capital A/c Dr.

 Reserve & Surplus A/c Dr.

To Shareholders A/c

Settlement with the shareholders

Shareholders A/c Dr.

To Shares/ Securities in Transferee Co. A/c

To Bank A/c

• Accounting in the books of Transferee Co.

Method of Accounting

• Amalgamation in the nature of Purchase

Purchase Method:

 Incorporate Assets & Liabilities at their existing carrying amount or alternatively the
consideration should be allocated to individual assets & liabilities on the basis of their fair value.

 The reserves other than statutory reserves should not be incorporated in the books of
transferee company.

 If PC > Net Assets acquired, recognise excess as Goodwill & If PC< Net Assets then difference is
recognised as Capital Reserve.

• Amalgamation in the nature of Purchase

Purchase Method

 Goodwill arising on the amalgamation should be amortised to income on the basis of its useful
life. Amortisation period should not exceed five years unless longer period is justified.

 If Statutory Reserves are required to be maintained, they are maintained by passing the
following entry:

Amalgamation Adjustment A/c Dr.

Statutory Reserves A/c.

• Transaction/Events of Transferee Co.

1. PC Due

2. Incorporation of Assets & Liabilities

 3. Discharge of PC

4. Realisation Expenses

5. Inter company Owings

6. Maintenance of Statutory Reserves

• Accounting entries in the books of Transferee Co.

1. PC Due

Business Purchase A/c Dr.

To Liquidator of Transferor Co.

2. Incorporation of Assets & Liabilities

Assets A/c Dr.

Goodwill A/c Dr. (Bal fig.)

To Liabilities A/c

To Business Purchase A/c

To Capital Reserve (Bal fig.)

• Accounting entries in the books of Transferee Co.

3. Discharge of PC

Liquidator of Transferor Co. A/c Dr.

To Share Capital A/c

To Securities Premium A/c

To Bank A/c

• Accounting entries in the books of Transferee Co.

Realisation Expenses

• Accounting entries in the books of Transferee Co.

Inter Company Owings

Eliminate the effect of transactions

e.g. Creditors A/c Dr.

To Debtors A/c

Statutory Reserves

Amalgamation Adjustment A/c Dr.

To Statutory Reserves A/c