AMALGAMATION, ABSORPTION & RECONSTRUCTION 1. Method to calculate Purchase Co s!derat!

o " Net Asset #ethod

Agreed value of assets taken over Less" Agreed value of Liab. taken over PC xxx xxx xxx

I ta s!c $alue #ethod

MV of total assets Less" MV of total Liab. Net intrinsic value xxx xxx xxx

Net %a&#e t #ethod

Amalgamation in nature of: Mer'er" Amount paid to Equit s!are!olders onl in t!e form of equit s!ares in purc!asing compan except cas! for fraction of s!ares. Purchase" "as! and agreed value of s!ares# debentures and ot!er assets given b purc!asing compan to t!e liquidator of vendor compan (or the Shareholders of vendor compan .

$ntrinsic Value % Net $ntrinsic value &er s!are No. of equit s!are PC% No. of equit s!ares purc!ased ) $ntrinsic value per s!are of vendor compan

Note" $f information about all t!e t!ree met!od is given in t!e question t!en 'e s!ould follo' Net %a&#e t #ethod. (. A#al'a#at!o ! ature o* #er'er" Amalgamation deemed to be in t!e nature of merger if follo'ing conditions are satisfied: +BARE, Business of vendor compan must be carried on b t!e purc!asing compan . All assets and liabilities of vendor compan transferred to purc!asing compan . Recorded in ne' compan of assets and liabilities taken over at )ook Value of vendor compan . *Except to compl 'it! accounting polic + Equit s!are!olders !olding ,-. s!ares *except alread !eld+ agree to become s!are!olders in ne' compan . ,isbursement of &urc!ase "onsideration onl in s!ares except cas! for fraction of s!ares. .. E tr!es ! /oo0s o* $e dor co#%a &" a- Real!sat!o accou t" /e !ave to follo' t!e follo'ing procedure 0ransfer all real assets to debit side at Gross Boo0 1alue including good'ill but excluding fictitious assets. 0ransfer all outs!de liabilities to credit side at Gross Boo0 1alue but excluding accumulated reserves and surplus. $f an asset1liabilities not taken over t!an an realisation on sale of suc! asset or pa ment on disbursement of suc! liabilities is credited1debited to realisation account. Amount of &urc!ase "onsideration is credited to realisation account. Liquidation expenses debited to realisation account if born b vendor compan 2ealisation account is balanced and t!e balance of t!is account is profit or loss on realisation# '!ic! is transferred to Equit 3!are!olders Account. Notes" 4. Assets ot ta0e o$er !* tra s*erred to shareholders accou t" it must be s!o'n on debit side of s!are!olders account at Curre t 1alue of suc! asset and a corresponding credit is made to realisation account.

(. 2hat are outs!de l!a/!l!t!es" &reference s!are!olders and 5ebenture !olders are treated outside liabilities. )ut proposed dividend is not treated outside liabilities. 6. I* a'a! st a & reser$e there !s a & e3%ected l!a/!l!t!es: t!en to t!e extent of t!at expected liabilit t!e amount of reserve is transferred to realisation account and balance to s!are!olders account as usual. E3a#%le" /orkmen compensation reserve given in )alance s!eet % 7--Expected liabilit to 'orkmen %8---. 0!erefore 2s 8--- 'ill be transferred to t!e credit side of realisation account and balance 2s 6--- to t!e credit side of s!are!olders account. 9. A & ! ter co#%a & o4! 's or ad5ust#e ts: is ignored '!ile preparing vendor compan books# it is considered onl '!ile preparing purc!asing compan books. /- E6u!t& Shareholders Accou t" Cred!t s!de" Equit 3!are "apital# Accumulated profits and reserves# balance of realisation account. ,e/!t s!de" Accumulated losses, :ictitious asset# amount of &urc!ase "onsideration# balance of realisation account. c- Purchas! ' Co#%a & Accou t" Cred!t s!de" Amount of &urc!ase "onsideration due. ,e/!t s!de" 5isc!arge of &urc!ase "onsideration. 7. E tr!es ! /oo0s o* Purchas! ' Co#%a & a- Three /as!c e tr!es (or %urchase co s!derat!o due )usiness purc!ase a1c 5r. 0o liquidator of vendor compan (or assets a d l!a/!l!t!es ta0e o$er Assets taken over 5r. ;ood'ill a1c 5r. 0o liabilities taken over 0o business purc!ase a1c 0o capital reserve a1c (or d!schar'e o* %urchase co s!derat!o Liquidator of vendor compan a1c 5r. 0o equit s!are capital a1c 0o s!are premium a1c 0o debentures a1c 0o preference s!are capital a1c 0o cas! /- (or l!6u!dat!o e3%e ses %a!d /& %urchas! ' co#%a & ;ood'ill1"apital reserve a1c 0o cas! a1c c- (or ca cellat!o o* #utual o4! 's "reditor 1)ills pa able a1c 5r. 5r.

0o 5ebtors1)ills receivable a1c d- (or ad5ust#e t o* u real!sed %ro*!t ;ood'ill1"apital reserve a1c 0o 3tock a1c e- (or carr& *or4ard o* statutor& reser$es Amalgamation ad<ustment a1c 0o 3tatutor reserve a1c 5r. 5r.

*- I* /oth ca%!tal reser$e a d 'ood4!ll a%%ears ! /oo0s "apital reserve a1c 0o ;ood'ill a1c 5r.

Note" A#al'a#at!o ! ature o* #er'er" 0!e entries in t!e case of amalgamation in t!e nature of merger is almost similar to t!e entries given above# t!e onl difference is: $n t!e second basic entr above# instead of opening t!e ;ood'ill1"apital reserve a1c# t!e difference bet'een purc!ase consideration paid and book value of t!e s!are capital of $e dor co#%a & is ad<usted in general reserve. $f general reserve is not sufficient t!en balance ad<usted in profit = loss account. 3imilarl an difference in actual debenture value and t!e amount paid to t!em is also ad<usted to general reserve. $f general reserve is not sufficient t!en balance ad<usted in profit = loss account. /!ere ever ;ood'ill1"apital reserve a1c is debited or credited in above entries 'e 'ill !ave to debit or credit general reserve account. :ollo'ing 'ill remain same in bot! t!e met!ods of amalgamation "alculation of &urc!ase consideration. 5isc!arge of &urc!ase consideration. Entries in books of vendor compan .

8. I ter co#%a & hold! '

Purchas! ' co#%a & held shares ! $e dor co#%a & +P 11e dor co#%a & held shares ! %urchas! ' co#%a & +1 PCalculat!o o* %urchase co s!derat!o &" *;iven1calculated+ xxx &" *;iven1calculated+ Less: . reduction for s!ares xxx ?eld b purc!asing Less: Value of s!ares ?eld compan in vendor b vendor compan in compan xxx purc!asing compan Net PC 333 xxx Net PC 333 9 : Shares held /& ) 1;; %urch. co#%. Total shares o* $e dor co#%. Boo0s o* 1e dor co#%a & Real!sat!o accou t All assets 1alue: No o* shares held ) I tr! s!c $alue %er share Both $e dor a d %urchas! ' co#%a & held shares ! each other +P> 1&" *;iven1calculated+ Less: . reduction for s!ares ?eld b purc!asing compan in vendor compan Less: Value of s!ares ?eld b vendor compan in purc!asing compan Net PC xxx

xxx xxx 333

Real!sat!o accou t