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Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
Accounting for Amalgamation, Absorption and External Reconstruction
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Accounting for Amalgamation, Absorption and External Reconstruction

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  • 1. Made By RS
  • 2. ACCOUNTING FOR AMALGAMATIONS The accounting issues pertaining to amalgamation as defined under the provision of the companies act’1956 are dealt under Accounting Standard (AS) 14 as evolved by the institute of charted accountant of India. The term includes absorption as well. Amalgation results in the emergence of new entity and the status of the existing vanishes . In Absorption, one entity takes over the existing entity and such one legal entity ceases to exist. The terms defined under AS-14 Transferor: This Represents The Company Which Is Amalgamated Into Another Company. The Selling Entity Is Called Vendor Company. Transferee: This Entity With Whom Transferor Company Is Amalgamated. The Buying Entity Is Called ‘Vendee Company’ Purchase consideration: When Amalgamation Takes Place, The Vendee Company Has To Pay For The Assets And The Liabilities Of The Vendor Company . This Amount Is Known As The Purchase Consideration Made By RS
  • 3. Types of amalgamation >>>>IN THE NATURE OF MERGER >>>>>IN THE NATURE OF PURCHASE IN THE NATURE OF MERGER In this types of amalgamation, there is a polling of not just assets and liabilities but also the interests of shareholder and of the business of the two entities merging with each other. AS-14 prescribe fulfillment of five conditions for a merger to fall in the aforesaid category: • All assets and liabilities of vendor company become the assets and liabilities of the vendee company. • Shareholders of vendor company holding at least 90% face value of equity share become the shareholders of the vendee company. • The consideration payable to the shareholders of vendor company should be through issues of share in the vendee company. Fractional shares ,if any, can however be paid for in cash • After amalgamation, the vendee has the intention carrying on the business of the vendor • The assets and liabilities of vendor company are incorporated into the balance sheet of vendee company and I should be shown using uniform accounting policies. Made By RS
  • 4. IN THE NATURE OF PURCHASE in this one company acquires another as a result of which the shareholders of the company which is acquired do not continue to possess interest in the equity of the combined entity in the proportion in which they held the shares in liquidated company. Under this case, the method of accounting that is followed is called purchase method. The salient features are as follows: • The assets and liabilities of vendor company are included in the financial statements of the vendee company at their values on the dates of amalgamation. The non statutory reserves, both capital and reserves, not included. • If the purchase consideration exceeds the net assets value(assetsliabilities) then excess amount is recorded as goodwill. • If the purchase consideration is less than the net assets value, it is recorded as capital reserves. Made By RS
  • 5. International Financial Reporting Standards (IFRS) 1. 2. 3. 4. 5. 6. • • • • Basic provisions under IFRS 3 Focus of coverage Types of combination Measurement of cost Measurement of consideration Allocation of cost Tangible asset Liabilities Intangible assets Contingent Liabilities Made By RS
  • 6. A B C HERO HONDA HERO HONDA Made By RS
  • 7. A VODAFONE B A HUTCH VODAFONE Made By RS
  • 8. A B GOLDSTAR LG Made By RS
  • 9. HOW TO MAKE VENDOR COMPANY BOOKS? 1) FIND PURCHASE CONSIDERATION 2) PREPARE 3 ACCOUNTS:• REALISATION ACCOUNT • SHAREHOLDER ACCOUNT • PURCHASING COMPANY ACCOUNT 3) TRANSFER ALL ASSETS AND LIABILITIES TO REALISATION ACCOUNT @ BOOK VALUE 4) TRANSFER SHARE CAPITAL, RESERVES AND SURPLUS, FICTITIOUS ASSETS TO SHAREHOLDER’S ACCOUNT 5) NOW MAKE THE ENTRY FOR PURCHASE CONSIDERATION  PURCHASING COMPANY ACCOUNT DR. TO REALISATION ACCOUNT 6) DEMAND THE PURCHASE CONSIDERATION AND BRING SHARES, CASH ETC. AGAINST DEBT BY THE ENTRY  SHARES ACCOUNT DR. CASH ACCOUNT DR. ETC ACCOUNT DR. TO PURCHASING COMPANY ACCOUNT 7) GIVE ALL THESE SHARES, CASH ETC. TO THE SHAREHOLDERS BY THE ENTRY.  SHAREHOLDERS ACCOUNT DR. TO SHARES ACCOUNT TO CASH ACCOUNT TO ETC 8) FIND PROFIT AND LOSS ACCOUNT AND TRANSFER IT TO SHAREHOLDER ACCOUNT. SHAREHOLDER ACCOUNT WOULD MATCH. Made By RS
  • 10. PURCHASING COMPANY BOOKS PURCHASING COMPANY HAVE GOT THREE BASIC ENTRIES.  BUSINESS PURCHASE ACCOUNT DR. TO LIQUIDATOR OF VENDOR COMPANY (BEING BUSINESS PURCHASED )  LAND AND BUILDING ACCOUNT DR. PLANT AND MACHINERY ACCOUNT DR. INVESTMENTS ACCOUNT DR. STOCK ACCOUNT DR. TO CREDITORS ACCOUNT TO DEBENTURES ACCOUNT TO BUSINESS PURCHASE ACCOUNT (BEING SUNDRY ASSETS AND LIABILITIES TAKEN OVER)  LIQUIDATOR OF VENDOR COMPANY ACCOUNT DR. TO EQUITY SHARE CAPITAL ACCOUNT TO SECURITY PREMIUM ACCOUNT TO CASH ACCOUNT (BEING AMOUNT PAID TO LIQUIDATOR) Made By RS
  • 11. PURCHASE CONSIDERATION NET PAYMENT METHOD SOMETHING GIVEN TO SHAREHOLDERS (EQUITY/PREFERENCE) OF VENDOR COMPANY BY PURCHASING COMPANY Made By RS NET ASSET METHOD ASSET-LIABILITIES (TAKEN OVER AT MARKET-VALUE/BOOK-VALUE/AGREED VALUE)
  • 12. BALANCESHEET OF VENDOR COMPANY CASE 1 VENDOR COMPANY IS TAKEN OVER BY PURCHASING COMPANY ON THE AGREEMENT THAT LAND AND BUILDING INCREASE BY 20%, PLANT AND MACHINERY INCREASE BY 40%, STOCK OF RS 40000 IS OBSOLETE AND DEBTORS OF RS 20000 IS A BAD DEBT. THE MARKET VALUE OF INVESTMENT IS RS 65000. IT WAS AGREED TO ISSUE 4 EQUITY SHARES FOR EVERY 5 HELD OF RS 10 EACH VALUED AT RS 15. IT WAS ALSO AGREED TO PAY RS 4 PER SHARE IN CASH. CALCULATE PURCHASE CONSIDERATION BY NET PAYMENT METHOD. Made By RS
  • 13. PURCHASE CONSIDERATION BY NET PAYMENT METHOD SHARES (50000/5)X4X15 CASH 50000X4 Made By RS RS 600000 RS 200000 RS 800000
  • 14. BALANCESHEET OF VENDOR COMPANY CASE 2 VENDOR COMPANY IS TAKEN OVER BY PURCHASING COMPANY ON THE AGREEMENT THAT LAND AND BUILDING INCREASE BY 20%, PLANT AND MACHINERY INCREASE BY 40%, STOCK OF RS 40000 IS OBSOLETE AND DEBTORS OF RS 20000 IS A BAD DEBT. THE MARKET VALUE OF INVESTMENT IS RS 65000. IT WAS AGREED TO ISSUE 4 EQUITY SHARES FOR EVERY 5 HELD OF RS 10 EACH VALUED AT RS 15. IT WAS ALSO AGREED TO PAY RS 4 PER SHARE IN CASH. CALCULATE PURCHASE CONSIDERATION BY NET ASSET METHOD. Made By RS
  • 15. PURCHASE CONSIDERATION BY NET ASSET METHOD LAND AND BUILDING 250000 + 20% OF 250000 PLANT AND MACHINERY INVESTMENT STOCK DEBTORS CASH (-) CREDITORS DEBENTURES (-) 170000 + 40% OF 170000 65000 120000-40000 140000-20000 200000 70000 100000 Made By RS 300000 238000 65000 80000 120000 200000 (70000) (100000) RS 8,33,000
  • 16. PURCHASE CONSIDERATION RS 8,33,000 SHARES (50000/5)X4X15 Made By RS RS 600000 CASH RS 2,33,000 (B/F)
  • 17. VENDOR COMPANY BOOKS REALISATION ACCOUNT SHAREHOLDER’S ACCOUNT PURCHASING COMPANY ACCOUNT Made By RS
  • 18. PURCHASING COMPANY BOOKS  BUSINESS PURCHASE ACCOUNT DR. TO LIQUIDATOR OF VENDOR COMAPANY (BEING BUSINESS PURCHASED) 800000  LAND AND BUILDING ACCOUNT DR. PLANT AND MACHINERY ACCOUNT DR. INVESTMENT ACCOUNT DR. STOCK ACCOUNT DR. DEBTORS ACCOUNT DR. CASH ACCOUNT DR. TO CREDITORS ACCOUNT TO 9% DEBENTURE ACCOUNT TO BUSINESS PURCHASE ACCOUNT (BEING SUNDRY ASSET AND LIAB TAKEN OVER) 300000 238000 65000 80000 120000 200000  LIQUIDATOR ACCOUNT DR. TO EQUITY SHARE CAPITAL TO SECURITY PREMIUM ACCOUNT TO CASH ACCOUNT (BEING AMOUNT PAID TO LIQUIDATOR ) 800000 800000 70000 100000 800000 Made By RS 400000 200000 200000
  • 19. Made By RS
  • 20. Three good examples of amalgamations are as follows: 1) Maruti Motors operating in India and Suzuki based in Japan amalgamated to form a new company called Maruti Suzuki (India) Limited. 2)Tata Sons operating in India and AIA Group based in Hong Kong amalgamated to form a new company called TATA AIG Life Insurance. 3) Satyam Computers Ltd and Tech Mahindra Ltd Made By RS
  • 21. • Tech Mahindra announced its merger with Mahindra Satyam on 21 March 2012,after the board of two companies gave the approval. • Tech Mahindra got the approval from the registrar of companies for the merger late in the night at 11:45 (pm) on June 24, 2013. July 5, 2013 has been determined date on which the Satyam shares will be swapped for Tech Mahindra shares which was approved by both the boards. • Mahindra Satyam (Satyam Computer Services), was suspended from trading with effect from July 4, 2013, following its merger with Tech Mahindra Made By RS
  • 22. Made By RS
  • 23. THANK YOU

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