1. BY ,
JIJO SAJI
SRO 0455534
EXTERNAL AND INTERNAL
RE-CONSTRUCTONS
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2. WHY ? RE-CONSTRUCTION
*CHANGED NATURE OF BUSINESS
*DOWNSIZING
*NEW-WORK METHODS
*NEW-MANAGEMENT METHODS
*QULITY MANAGEMENT
*TECHNOLOGY
*FINANCE RELATED ISSUES
*STATOTARY LEGAL COMPLIMENTS
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3. WHAT? RE-CONSTRUCTION
when a company is suffering loss for several past years and
suffering from financial difficulties, it may go for
reconstruction. In other words, when a company's
balance sheet shows huge accumulated losses, heavy
fictitious and intangible assets or is in financial
difficulties or is to over capitalized, and then the process of
reconstruction is restored.
Reconstruction may be internal and external
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8. EXTERNAL RE-CONSTRUCTION
When a company is suffering losses for the past several years and facing
financial crisis, the company can sell its business to another newly formed
company. Actually, the new company is formed to take over the assets and
liabilities of the old company. This process is called external
reconstruction.
In other words, external reconstruction refers to the sale of the business of
existing company to another company formed for the purposed. In external
reconstruction, one company is liquidated and another new company is
formed. The liquidated company is called "Vendor Company" and the new
company is called "Purchasing Company". Shareholders of vendor
company become the shareholders of purchasing company.
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9. AMALGAMATION
AMALGAMATION IS UNION OF TWO OR MORE COMPANIES
MADE WITH AN INTENTION TO FORM A NEW COMPANY
THERE ARE TWO TYPE OF METHOD FOR AMALAGAMATION
Pooling of interest method (merger method)
Purchasing method
Amalgamation accounting was stated in AS14
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10. MERGER METHOD
Under this method is a genuine pooling not merely
of assets and liabilities of the amalgamating
companies but also of the share holders interest
and of the business of the companies
Under this method all the assets and liabilities not
only but also all reserves also should be transferred
at there carrying amount
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11. PURCHASE METHOD
A mode by which one company acquires another
company and as a consequence the shareholders
of the company which is acquired normally do
not continue to have a proportionate share in
the equity of the company
Under this method they will not bound to take
all asset and liabilities of transferee company
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12. AS-14
* All asset and liabilities of the transferor company become, after
amalgamation , the asset and liabilities of the transferee company
* Shareholders holding not less than 90% of the face value of the equity
shares of the transferor company [other than the equity share already held
therein , immediately before the amalgamation , by transferee company or
its subsidiaries or there nominee’s] become equity share holders of the
transferee company by virtue of amalgamation
* The consideration for the amalgamation receivable by those equity share
holders of the transferee company who agree to become equity share
holders of the transferee company , except that cash may be paid in
respect of any fractional shares
* The business of the transferor company is intended to be carried on after
the amalgamation by the transferee company
* No adjustment is instated to be made to be book value of the asset and
liabilities of the transferor company when they are incorporated in the
financial statement of the transferee company (except to ensure the
uniformity of accounting policies )
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13. ABSORPTION
Absorption is the process under which an existing large company purchases
the business of another small company or companies doing similar
business. In other words, when an existing company takes over the business
of one or more existing companies carrying similar business, it is called
absorption. The company whose business is acquired is liquidated. But, no
new company is formed. The company which takes over the business is
called absorbing or purchasing company and the company, the business of
which is taken over is called absorbed or vendor company. The accounting
record of absorption is similar to that of amalgamation
One or more companies are liquidated.
No new company is formed.
The nature of business of both companies is similar.
Generally, larger company purchase the business of smaller
company
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14. ACQUSITION
A corporate action in which a company buys most, if not
all, of the target company's ownership stakes in order to
assume control of the target firm. Acquisitions are often
made as part of a company's growth strategy whereby it
is more beneficial to take over an existing firm's
operations and niche compared to expanding on its own.
Acquisitions are often paid in cash, the acquiring
company's stock or a combination of both.
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15. INTERNAL RE-CONSTRUCTION
Internal reconstruction refers to the internal re-
organization of the financial structure of a company. It is
also termed as re-organization which permits the existing
company to be continued. Generally, share capital is
reduced to write off the past accumulated losses of the
company. The accounting procedure of internal
reconstruction is distinct from that of amalgamation,
absorption and external reconstruction.
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16. Reduction of share capital
Sometimes there may be a genuine necessity for the
reduction of capital. This power is, given by Section 100 of
the Companies Act,
* Methods of Reduction in Share Capital:
There are three ways to give effect to the scheme of
Reduction in Share Capital. These are as follows:
(1) By extinguishing or reducing the liability on any
of its shares.
(2) By paying off any paid-up share capital which is
in excess of what is required by the company.
(3) By cancelling any paid- up capital which is lost or
is unrepresented by any available assets.
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18. Alteration of share capital
Memorandum of Association contains capital clause of a
company. Under Section 94 of the Companies
A company can alter share capital in any of the following
ways:
(a) The company may increase its capital by issuing new
shares.
(b) It may consolidate the whole or any part of its share
capital into shares of larger amount.
(c) It may convert shares into stock or vice versa.
(d) It may sub-divide the whole or any part of it’s share
capital into shares of smaller amount.
(e) It may cancel those shares which have not been taken up
and reduce its capital accordingly.
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19. some real life examples
*Face book acquire whatsapp
*Hutch amalgamated with Vodafone
*Nokia absorbed by Microsoft
*BPL reconstructed into Videocon
*DOCOMO change their structure
*ASIANET absorbed by STAR group
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