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Amalgamation: 5) (Basically
Amalgamation: 5) (Basically
AMALGAMATION
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Absorption:
It is the process in which one existing company takes over the other existing company and merges
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together as a single unit.
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Amalgamation:
It is the process in which two or more existing companies joins together and start new company wi th
new name and identity and dissolves the existing companies.
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External Reconstruction:
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It is the process in which one existing company reconstructs itself with new name and identity.
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Now come to the point: - Amalgamation
Basic Understanding about Absorption, Amalgamation and External Reconstruction:-
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1 There are Some Conditions (Basically 5) that must be fulfilled for Amalgamation in the Nature of Merger.
1. The Transferor Company must take over all the assets and all the liabilities of the transferor
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company.
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2. Assets and Liabilities of the transferor company will be taken over by the transferee company
at their book value.
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3. The transferee company must carry on the same nature of business as that of the transferor
company.
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4. At least 90% of the Equity Shareholders of the transferor company must agree to become the
shareholders of the transferee company.
5. The transferee company must discharge the amount of Purchase consideration by issuing its
Equity Shares to the Equity Shareholders of the transferor Company and if there is any Fraction
it would be paid in Cash.
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JMD 2
If any one or more of the above mentioned condition is/are not fulfilled, the situation is called
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Amalgamation in the Nature of Purchase.
Calculation of Purchase Consideration (There are Four Methods for Calculation of Purchase
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Consideration):-
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4. Net Payment Method
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3. (I) NET ASSETS METHOD: (Note: Normally used in the
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Nature of How To Calculate:- Purchase)
###
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Assets Taken over
Purchase Consideration ###
----------------------------- ***
----------------------------- ***
----------------------------- ***
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Note: Assets and Liabilities will be taken over at
revised figure if given otherwise at Book
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###
Value.
(-) Less:
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----------------------------- ***
consideration includes only those payments which
----------------------------- ***
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OR
It means no any other payment (like payment to Dissolution Expenses, Payment to debenture
Holders, Payment to Creditors etc) will be included in the calculation of the amount of Purchase
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consideration.
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(JOURNAL ENTRIES)
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JMD 3
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Transferee Co. A/c ***
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To Realisation A/c ***
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Note: To making Transferee Co. as our Debtors because Purchase Consideration will
be get later.
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4. (When any asset sold in the market by Transferor Company)
Discount)
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At Premium
Realisation A/c ***
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At Discount
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JMD 4
Realisation A/c
To Bank A/c ***
***
b). When realisation Expenses are paid by the transferee Company.
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i). Transferee Company A/c To
Bank A/c
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ii) Bank A/c ***
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To Transferee Company A/c ***
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***
***
8. (For recording of Profit/Loss on Realisation)
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a). In Case of Profit
***
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Realisation A/c
To Equity Share Holders A/c ***
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To Realisation A/c
***
***
Equity Share in Transferee Company A/c ***
Preference Share in Transferee Company A/c
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***
Debenture in Transferee Company A/c
***
Other Securities in Transferee Company A/c
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***
Cash A/c ***
To Transferee Company A/c
***
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(Note: PC can be Discharged by any one or more than one or by all whice are mentioned above)
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JMD 5
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***
12. (When Equity Share Capital and Reserve and Surplus are Transferred
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to Equity Share holders A/c)
***
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Equity Share Capital A/c ***
Reserve & Surplus A/c
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To Equity Share Holders A/c ***
13. (When Miscelleneous Expenditure and Profit & Loss A/c (Dr.) Balance
is adjusted in Equity Share Holders A/c)
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Equity Share Holders A/c ***
To Miscelleneous Expenditure A/c
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***
To Profit & Loss A/c ***
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***
To Other Securities in Transferee Company A/c ***
To Cash A/c
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***
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Realisation Account
T a sfe ee’s A ou t Note: Generally we prepare only four
Preference Share Holders Account Accounts in Practical Questions
Equity Share Holders Account
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JMD 6
REALISATION ACCOUNT
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To Preference Share Holders A/c *** By Bank A/c ***
(Loss due to Premium) (Any Assets Sold)
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To Bank A/c *** By Preference Share Holders A/c ***
(Realisation Exp. paid by Co.) (Profit Due to Discount)
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To Equity Share Holders A/c *** To Equity Share Holders A/c ***
[Profit (Balancing Figure)] [Loss (Balancing Figure)]
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### ###
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TRANSFEREE COMPANY A/C
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(Purchase Consideration)
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### ###
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Note: Items will be varying in Amalgamation in the nature of Merger or Purchase as case may be.
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JMD 7
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D
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To Profit and Loss A/c (Loss: Dr. Bal.) *** By Reserve & Surplus A/c ***
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To Realisation A/c (If Loss) *** By Realisation A/c (If Profit) ***
To Equity Share in Transferee Co. A/c *** ***
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### ###
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JMD 8
(JOURNAL ENTRIES)
IN THE NATURE OF MERGER IN THE NATURE OF PURCHASE
Pooling Interest Method
S.N Particulars Dr. Cr. S.N. Particulars Dr. Cr.
1. When Business of Transferor Company is Taken Over.
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To Liquidator of Transferor Co. *** To Liquidator of Transferor Co. A/c ***
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2. A/c When Assets and Liabilities Taken over are recorded
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D
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A
SC
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JMD 9
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If in the practical question the Word used Assu ptio , Absorb o Takeo er , Took o er it
means all the liabilities and Assets are taken over by the Transferee except Describing separately
apart from these words.
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JMD 10
If i the p a ti al uestio the Wo d used Follo i g it means only those Assets and Liabilities
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are taken over by the Transferee Company which is Describing below the Following Word.
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If Purchase Consideration is calculated by Net Assets Method then at the time of making Journal
Entry for Recording of Assets and Liabilities taken over there will be now balancing figure in Dr.
or Cr.
While recognizing whether the Purchase Consideration will be calculated by Net Assets Method or
Net Payment Method just See if there is full information is given in Question about the payment
to Owners (Equity and Preference) as Purchase Consideration then PC will be calculated by Net
Payment Method
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JMD 11
Otherwise if there is any little information is missing then PC will be calculated by Net Assets
Method. For Example: In question there is given that Prefe e e Dis ha ged as ………….a d E uit
Dis ha ged as ……………………a d Re ai i g i Cash (If ot possi le to fi d How Mu h
Cash).
Now Remaining in Cash it mea s we do ’t k ow how u h a ou t will e paid i Cash. The
Net Assets Method will be Apply.
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In Case of Merger all the Losses and Profits will be merged whereas in the Purchase Not.
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A
SC
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