Professional Documents
Culture Documents
Forms of Amalgamation
Merger Acquisition or Takeovers (more than 15% intending to control) Friendly Takeover Hostile Takeover
Synergy(2 + 2 = 5) Economies of Scale Financial Economies Growth Diversification Managerial Efficiencies Tax benefits
http://www.livemint.com/SectionPages/MergersAcquisitions.aspx?NavId=3&NavsId=21
Procedure of Amalgamation
BOD works out terms of Amalgamation. A scheme of Amalgamation is prepared and submitted for approval of respective High Courts. Shareholders approve the terms of Amalgamation. Approval of SEBI is obtained. A new company is formed where necessary to issue its own shares to shareholders of transferor company. The transferor companies are liquidated and all assets and liabilities are taken over by transferee company.
Types of Amalgamation
equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares. (iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company. (v) No adjustment 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 which does not satisfy any one or more of the conditions specified above.
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.
Under the pooling of interests method, the assets, liabilities and reserves of the transferor company are recorded by the transferee company at their existing carrying amounts . If, at the time of the amalgamation, the transferor and the transferee companies have conflicting accounting policies, a uniform set of accounting policies is adopted following the amalgamation. The effects on the financial statements of any changes in accounting policies are reported in accordance with Accounting Standard (AS) 5, Prior Period and Extraordinary Items and Changes in Accounting Policies.
Under the purchase method, the transferee company accounts for the amalgamation either by incorporating the assets and liabilities at their existing carrying amounts or by allocating the consideration to individual identifiable assets and liabilities of the transferor company on the basis of their fair values at the date of amalgamation. The identifiable assets and liabilities may include assets and liabilities not recorded in the financial statements of the transferor company.
Where assets and liabilities are restated on the basis of their fair values, the determination of fair values may be influenced by the intentions of the transferee company. For example, the transferee company may have a specialised use for an asset, which is not available to other potential buyers. The transferee company may intend to effect changes in the activities of the transferor company which necessitate the creation of specific provisions for the expected costs, e.g. planned employee termination and plant relocation costs.
Disclosure
For all amalgamations, the following disclosures are considered appropriate in the first financial statements following the amalgamation: (a) names and general nature of business of the amalgamating companies; (b) effective date of amalgamation for accounting purposes; (c) the method of accounting used to reflect the amalgamation; and (d) particulars of the scheme sanctioned under a statute.
Disclosure
For amalgamations accounted for under the pooling of interests method, the following additional disclosures are considered appropriate in the first financial statements following the amalgamation: (a) description and number of shares issued, together with the percentage of each companys equity shares exchanged(swap ratio) to effect the amalgamation; (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof.
Disclosure
For amalgamations accounted for under the purchase method, the following additional disclosures are considered appropriate in the first financial statements following the amalgamation: (a) consideration for the amalgamation and a description of the consideration paid or contingently payable; and (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof including the period of amortisation of any goodwill arising on amalgamation.
For Amalgamation of the business: Business Purchase A/cDr.(Purchase Consideration ) To Liquidator of Transferor Co. A/c. For Taking over assets, liabilities and resources: Sundry Assets A/cDr.(Book Value) To Sundry Liabilities A/c( Book Value) To Reserves A/c(See Note) To Profit & Loss A/c To Business Purchase A/c(Purchase Consideration) Note: After adjustment of differences in Issued Share Capital and the amount of Paid up Share Capital.
For payment of Purchase Consideration: Liquidator of Transferor Co. A/c..Dr. To Share Capital A/c(Issued) To Securities Premium A/c(Premium) To Cash A/c(To fractional shareholders who dissent) To Non-cash Consideration A/c (To fractional shareholders who dissent)
Prepare the balance sheet on the date of liquidation. Open Realization A/c and transfer all assets and liabilities. Calculate Purchase Consideration Credit Realization A/c by Purchase Consideration. Calculate profit or loss on realization. Transfer share capital, reserves and surplus to sundry shareholders A/c. Transfer profit or loss on realization to sundry shareholders A/c. Receive purchase consideration. Make payment to preference shareholders. Distribute shares of transferee company among existing SHs
For transferring assets to Realization A/c Realization A/c..Dr. To Assets A/c For transferring liabilities to Realization A/c Liabilities A/c.Dr. To Realization A/c For transferring equity share capital, reserve and surplus Equity Share Capital A/cDr. General Reserves A/c.Dr. Profit & Loss A/c...Dr. To Sundry Shareholders A/c
For transferring preference share capital Preference Share Capital A/cDr. To Preference Shareholders A/c For purchase consideration due from transferee company Transferee Co. A/cDr. To Realization A/c On receiving purchase consideration Equity Shares(Te Co.) A/cDr. Preference Shares(Te. Co.) A/c...Dr. Debenture (Te. Co.) A/c.Dr. To Transferee Co. A/c
Q.8. B Ltd. was absorbed by A Ltd. and the Balance Sheet of B Ltd. as on 31.12.2010, is as follows.
Liabilities
Eq. Sh.(Rs.10) Capital General Reserve P & L App. A/c Accident Insurance Fund Dividend Equalization Fund Employees P F Sundry Creditors Total
Amount
1,00,000 80,000 10,000 20,000 20,000
Assets
Buildings Investments P&M Stock Debtors
Amount
70,000 60,000 60,000 27,500 50,000
10,000 2,500 2,80,000
The terms and conditions were: A Ltd. took all the liabilities and assets of B Ltd. at book value. A Ltd. issued 2 shares of Rs.8 each at a premium of Rs.5 per shares and Rs.3 in cash in exchange of 1 share of B Ltd. A Ltd. paid the cost of acquisition of Rs.2,000 in addition to purchase consideration. Show journal entries in books of both the companies according to pooling of interests method.
River Ltd. and Lake Ltd. merged together to form Sea Ltd. The following are balance sheets of those as on 31st March 2009.
Liabilities River Ltd. Equity Shares of 2,50,000 Rs.10 each. 10% Debentures 30,000 Lake Assets Ltd. 1,00,000 Plant Machinery --Stock River Lake Ltd. Ltd. & 2,30,000 1,10,000 80,000 1,90,000
12% Debentures
Profit & Loss A/c Reserve Creditors Total
2,00,000 Debtors
50 ,000 Cash and Bank --30,000 3,80,000 Total
50,000
70,000
20,000
60,000
4,30,000 3,80,000
On 1st April 2009, the two companies agreed to amalgamate. The purchase consideration was agreed at Rs. 3,50,000 and Rs. 1,40,000 for River Ltd. and Lake Ltd. respectively (a non cash exchange of 7 shares of Rs.10 at par in Sea Ltd. for every 5 shares). Give journal entries to close the books of River Ltd. and Lake Ltd. and also prepare the opening balance sheet of Sea Ltd.
X Ltd. and Y Ltd. merged together to form Z Ltd. The following are balance sheets of those as on 31st March 2009.
Liabilities Equity Shares of Rs.100 each. 6% Debentures of Rs.10 each Dividend Equalization Fund Profit & Loss A/c Reserve Creditors Employees PF Total X Ltd. 1,00,000 20,000 4,000 2,000 34,000 10,000 3,000 1,73,000 Y Ltd. 60,000 --------8,000 --68,000 Assets Plant Machinery Land & Buildings Stock X Ltd. & 1,10,000 30,000 16,000 14,000 3,000 Y Ltd. 50,000 --8,000 9,000 1,000
Total
1,73,000
68,000
On 1st April 2009, the two companies agreed to amalgamate. The purchase consideration was agreed at Rs. 1,20,000 and Rs. 60,000 for X Ltd. and Y Ltd. respectively . The entire PC was paid by fully paid shares. Debenture holders in X were issued debentures in Z for full amount and denomination. The authorized capital of Z Ltd. is 10,00,000 consisting of 1,00,000 equity shares of Rs.10 each. Give journal entries to close the books of X Ltd. and Y Ltd. and also prepare the opening balance sheet of Z Ltd.
For Amalgamation of the business: Business Purchase A/cDr.(Purchase Consideration ) To Liquidator of Transferor Co. A/c. For Taking over assets and liabilities: Sundry Assets A/cDr.(Individually, Agreed Value) Goodwill A/c..Dr.(Difference) To Sundry Liabilities A/c (Agreed Value) To Business Purchase A/c (Purchase Consideration) To Capital Reserve A/c (Difference)
For payment of Purchase Consideration: Liquidator of Transferor Co. A/c..Dr. To Share Capital A/c(Issued) To Securities Premium A/c(Premium) To Bank A/c(If any) To Non-cash Consideration A/c(If any) When Liquidation Expenses are incurred: Goodwill A/cDr. To Bank When Formation Expenses are incurred: Preliminary Expenses A/c.Dr. To Bank
When there are both goodwill and capital reserve: Capital Reserve.....Dr. To Goodwill When new Shares and Debentures are issued: Bank A/c Dr. To Share Capital To Debentures
For transferring assets to Realization A/c Realization A/c..Dr. To Assets A/c For transferring liabilities to Realization A/c Liabilities A/c.Dr. To Realization A/c For transferring equity share capital, reserve and surplus Equity Share Capital A/cDr. General Reserves A/c.Dr. Profit & Loss A/c...Dr. To Sundry Shareholders A/c
For transferring preference share capital Preference Share Capital A/cDr. To Preference Shareholders A/c For purchase consideration due from transferee company Transferee Co. A/cDr. To Realization A/c On receiving purchase consideration Equity Shares(Te Co.) A/cDr. Preference Shares(Te. Co.) A/c...Dr. Debenture (Te. Co.) A/c.Dr. To Transferee Co. A/c
For profit on Realization Realization A/cDr. To Sundry Sh. Holders A/c For final payment to equity. sh. holders Sundry Sh. Holders A/c .Dr. To Eq. Sh. In Te. Co. A/c To Bank A/c ( If any)
After payment to equity shareholders all accounts in the books of the transferor company will be closed.
Q. B. Co. was absorbed by A. Co. on 31.12.09, the B/S of B, on that day was as follows.
LIABILITIES Eq. Sh.(Rs.10) Capital General Reserve P & L App. A/c Accident Insurance Fund Dividend Equalization Fund Employees P F Rs. 1,00,000 Buildings 80,000 Investments 10,000 P & M 20,000 Stock 20,000 Debtors 20,000 Cash at Bank ASSETS Rs. 70,000 60,000 60,000 27,500 50,000 10,000
Sundry Creditors
Total
2,500
2,80,000
The terms and conditions were: (a) A took all liabilities and assets except investments, which B, sold at Rs.55,000. (b) A issued 2 shares of Rs.8 each at a premium of Rs.5 per shares and Rs.3 in cash in exchange of 1 share of B. (PC: Rs.2,90,000) (c) A paid the cost of acquisition of Rs.2,000 in addition to purchase consideration. Show journal entries in the books of both the companies.