This presentation contain information regarding amalgamation, absorption, types of amalgamation, purchase consideration and different methods of calculating purchase consideration.

1. Mr. Bijin Philip
Assistant Professor
Department of Management
Kristu Jayanti College
Corporate Accounting
Unit – III
Amalgamation and Absorption

2. Amalgamation
The term “Amalgam” means to unite or to combine.
The Team “amalgamation” means when two or more existing
companies go into liquidation and a new company is formed to
take over their business.
A Ltd B Ltd AB Ltd
Ex: Hero + Honda = HeroHonda
Maruti Motors (India) + Suzuki (Japan) = Maruti Suzuki

3. Absorption
The Team “absorption” means when one or more existing
companies go into liquidation and one existing company take over
or purchase the business of all companies.
In the case of absorption, only one company 'survive' and all other
lose their identity.
A Ltd B Ltd B Ltd
Ex: Hutch + Vodafone = Vodafone
Myntra + Flipkart = Flipkart

4. Difference B/W Amalgamation & Absorption
Comparison Amalgamation Absorption
Meaning Two or more different companies join to
become one, the process is called
Amalgamation.
When one company takes over the
business of another company, the process
is called Absorption.
New entity The new entity is formed. No new entity is formed.
Minimum number
of companies
involved
In the process of amalgamation, there
are at least three companies involved
(two liquidating and one newly formed).
While in Absorption there are at least two
companies involved.
Liquidating
companies
At least two companies liquidate. Only one company is liquidated (whose
business is overtaken by the other).
Domination No company dominates any other
company.
The bigger company dominates the weaker
company.

5. Transferor Company: It means the Company, which is
amalgamated into another Company.
Transferee Company: It means the Company into which a
Transferor Company is amalgamated.
Important Terms

6. Amalgamation in the nature of merger
• All the assets and liabilities of the transferor company becomes the assets and
liabilities of the transferee company
• shareholders holding not less than 90% of the face value of the equity shares of the
transferor company become the equity shareholders of the transferee company
• The business of the transferor company is intended to be carried on after the
amalgamation by the transferee company.
• Purchase consideration should be discharged only by issue of equity shares in the
transferee company except that cash may be paid in respect of any fractional
shares.
• No adjustments are required to be made in the book values of the assets and
liabilities of the transferor company
Amalgamation in the nature of purchase
• An amalgamation will be treated as “Amalgamation in the nature of purchase” if
any of the above mentioned conditions is not satisfied
Types of Amalgamation

7. Purchase consideration is the agreed amount which transferee
company (Purchasing company) pays to the transferor company
(Vendor company) in exchange of the ownership of the
transferor company.
It may be in form of cash, shares or any other assets as agreed
between both the companies.
Purchase Consideration

8. Purchase
Consideration
Lump
sum
method
share
exchange
method
Net
payment
method
Net asset
method

9. In this method when Transferee Company agrees to pay
Transferor Company a fixed sum of money.
Ex: xyz limited agrees to pay abc ltd 25 lakh. This is lump sum
method.
1. Lump sum method

10. In this method purchase consideration is calculated by adding all the
payments made by the transferee company to the shareholders of the
transferor company. Payment can be in the form of cash, shares or
debentures.
Note:
Value of assets and liabilities taken over by the transferee company are
not to be consider
Liquidation expenses paid by the transferee company should not consider
Amount paid to third party by the transferee company should not consider
2. Net Payment Method

11. Under this method the net asset value is calculated by deducting all the
liabilities taken over by the transferee company from the entire asset taken by
the transferee company.
3. Net Asset Method
PC = Asset taken over – Liability taken over

12. In this method to calculate purchase consideration following
formula is used:
PC = Net asset available to the equity shareholders/
number of equity shares.
4. Intrinsic value or share exchange method