The document discusses accounting for amalgamations under Indian accounting standards. It defines key terms like transferor and transferee companies. It explains the two types of amalgamation - in the nature of a merger and in the nature of a purchase. In a merger, the assets and liabilities of the transferor company are taken over by the transferee company at book value, while in a purchase the assets and liabilities are recorded at fair value. The document also provides examples of international and Indian company amalgamations.

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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
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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.
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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.
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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
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6. A
B
C
HERO
HONDA
HERO HONDA
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7. A
VODAFONE
B
A
HUTCH
VODAFONE
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8. A
B
GOLDSTAR
LG
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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.
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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)
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11. PURCHASE CONSIDERATION
NET PAYMENT
METHOD
SOMETHING GIVEN TO SHAREHOLDERS
(EQUITY/PREFERENCE) OF VENDOR
COMPANY BY PURCHASING COMPANY
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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.
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13. PURCHASE CONSIDERATION BY NET
PAYMENT METHOD
SHARES (50000/5)X4X15
CASH
50000X4
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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.
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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
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300000
238000
65000
80000
120000
200000
(70000)
(100000)
RS 8,33,000

16. PURCHASE CONSIDERATION RS 8,33,000
SHARES
(50000/5)X4X15
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RS 600000
CASH
RS 2,33,000
(B/F)

17. VENDOR COMPANY BOOKS
REALISATION ACCOUNT
SHAREHOLDER’S ACCOUNT
PURCHASING COMPANY ACCOUNT
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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
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400000
200000
200000

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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
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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
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23. THANK YOU