Introduction to Amalgamation - Amalgamation of Companies, Advanced Corporate Accounting | Advanced Corporate Accounting - B Com PDF Download

Amalgamation of Companies

There are many forms of business combinations to obtain the economies of large scale production or to avoid the cut throat competition. They are amalgamation, absorption, external reconstruction etc.

The term amalgamation is used when two or more existing companies go intoliquidation and a new company is formed to take over the business of liquidated companies. The term absorption is used when an existing company takes over the business of one or more existing companies which go into liquidation. In external reconstruction, one existing company goes into liquidation and a new company isformed to take overthe former company.

Definitions as per Accounting Standard 14 (AS‐14)

a. Amalgamation –means an amalgamation pursuantto the provisions ofthe Companies Act 1956 or any otherstatute whichmay be applicable to companies.
b. Transferor Company –meansthe companywhich is amalgamated into another company.
c. Transferee Company –meansthe company to which a 6ransferor company is amalgamated.
d. Reserve – means the portion of earnings, receipts or other surpluses of an enterprise (whether capital orrevenue) appropriated by the managementfor a general or a specific purpose otherthan provision for depreciation or diminution in the value of assets orfor a known liability.

Types of Amalgamation

Amalgamation in the nature of Merger (Pooling Interest Method)

An amalgamation should be considered to be an amalgamation in the nature of merge when all the following conditions are satisfied:

i. All the assets and liabilities of the Transferor Company or companies before amalgamation should become the assets and liabilities ofthe transferee company.

ii. Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (excluding the proportion held by the transferee company) should become the shareholdersofthe transfereecompany.

iii. The consideration payable to the above mentioned shareholders should be discharged by the transferee company by the issue of the equity shares and cash can be payable in respect of fractional shares.

iv. The business of the Transferor Company/ companies is intended to be carried on 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/ companies when they are incorporated in the financial statements of the transferee company exceptto ensure uniformity of accounting policies.

Amalgamation in the nature of purchase

An amalgamation should be considered to be an amalgamation in the nature of purchase, when any one or more ofthe conditionsspecified for amalgamation in the nature of mergeris not satisfied.

Difference betweenAmalgamation in the nature of merger andAmalgamation in the nature of purchase