Merger & Amalgamtion Presentation

8/12/2019 Merger & Amalgamtion Presentation

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AMALGAMATION

Presented by

HARI KUMAR


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DEFINITION

When two or more companies are combined into one by way of

merger or taking over by the other, it is called amalgamation. Amalgamation may be of two types

Amalgamation in the nature of merger, and Amalgamation in the nature of purchase


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Transferor/Vendor Company : The company which is merged to

or taken over or absorbed by another company. It is the company which sells its business.

Transferee/Vendee Company : The company which takes over or

absorbs another company. It is the company which purchases

business of another company.


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AMALGAMATION IN THENATURE OF MERGER

Following conditions must be satisfied:

1. All assets and liabilities of transferor company become assets andliabilities of transferee company

2. Shareholders of not less 90% of the shares in transferor company get

Eq. shares in the transferee company. Cash may be paid for fractional

shares.3. Business of transferor company carried on by transferee company.


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4. No adjustment for value of assets and liabilities of transferorcompany made in the books of transferee company unless it is

required to maintain uniformity in accounting policy.


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A MALGAM ATI ON I N THE NATUR EOF PURCHASE

When any one or more of the condition for amalgamation in thenature of merger is followed, it is called amalgamation in the nature

of purchase.


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AMALGAMATION IN THE NATURE OF MERGER:

COMPANY A + COMPANY B=COMPANY C (NEWCOMPANY)

AMALGAMATION IN THE NATURE OF PURCHASE:

1. COMPANY A ABSORBED BY COMPANY B

2. COMPANY A & B ABSORBED BY COMPANY C ETC.


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METHODS OF ACCOUNTING

There are two main methods of accounting for amalgamation:1. Pooling of interest method, and

2. Business purchase method.


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POOLING OF INTEREST METHOD

Assets and liabilities of transferor company taken over by

transferee company at book value , unless valuation required for

uniformity in accounting policy.

Difference in purchase consideration and net assets taken over if

any adjusted with reserves.

All reserves of transferor company shown in the books oftransferee company.


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All reserves of transferor company will be shown in the books oftransferee company.

This method is followed in case of amalgamation in the nature

of merger.


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PURCHASE METHOD

Assets and liabilities are taken over at fair value. Book value shall

be considered when fair value/market value/realisable

amount/amount to be paid not stated.

No reserve except statutory reserve will be shown in the books of

transferee company. Entry

Amalgamation Adjustment A/C..Dr. To Statutory Reserve A/C


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Difference in net assets taken over and purchase consideration is

dealt as followed: Purchase consideration > Net assets, difference being GOODWILL Purchase consideration< Net Assets, difference being CAPITAL

RESERVE

This method is followed in case of merger in the nature of

purchase.


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STATUTORY RESERVES

Reserve which is created / retained due to

applicability of laws/acts, is called statutory reserve.Example : Development Rebate Reserve, Investment

Allowance Reserve, Export Profit Reserve, Workmens

Compensation Reserve Etc.


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JOURNAL ENTRIES

In the books of vendor/transferor company:

1. Open realisation account an transfer all assets at book value:Realisation A/C Dr.

To Sundry Assets A/C ( Except Cash, when not stated

otherwise)

(Being transfer of assets to Realisation A/c for the purpose of sale ofbusiness to ltd.)


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2. Transfer liabilities and statutory reserves to Realisation A/C:

Sundry liabities A/CDr. Statutory Reserve A/C Dr.

(Transfer all reserves in pooling of interest method)

To Realisation A/C

(Being transfer of liabilities taken over by..ltd. To Realisation A/c)


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3. Purchase Consideration Due: Transferee/Purchasing Company A/C Dr.

To Realisation A/C

(Being amount receivable from .ltd. For sale of business)


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5. Expenses of liquidation :

a. Borne by vendor company:Realisation A/C.Dr.

To Bank/Cash A/C

(Being amount paid as liquidation/ realisation expenses)


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b. Borne by transferee/ purchasing company:

NO ENTRY required


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2. Not taken over by transferee company ( in this case liability will be

discharged by payment of cash):

a. For debeture:

Debenture A/C...Dr.

Outstanding interest on Debenture A/C .Dr.

To Debentureholders A/C/

( Being amount due to debentureholders transfer to DebentureholdersA/C)


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Debentureholders A/CDr. To Bank/Cash A/C

(Being debentureholders paid off)


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b. For Long term loan:

Loan A/CDr. Outstanding Interest on Loan A/C...Dr.

To Bank/Cash A/C

(Being Long term loan/loan paid off along with interest due on loan)


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7. Payment to Pref. Shareholder:

Pref. Share Capital A/C ..Dr. Realisation A/C (premium if any).....Dr.

To Pref. Shareholders A/C

(Being Pref. Share Capital and premium thereon transfer to Pref.

Shareholders A/C)


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Pref. Shareholders A/CDr.

To Bank/Cash A/C To Pref. Shares in .ltd. A/C

(Being final payment made to Pref. Shareholders)


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8. Payment to Eq. Shareholders:

A. At Pooling of Interest method:

Eq. Share Capital A/C ..Dr.

Realisation A/C..(credit Realiasation A/C if loss). Dr.

To Eq. Shareholders A/C

(Being Eq. Share Capital and profit on realisation transfer to Eq.Shareholdera A/C)


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Eq. Shareholders A/C Dr.

To Preliminary Expenses A/C To Profit & Loss A/C ( Dr. Balance)

To Other Miscellaneous Expenditure A/C

( Being ..transfer to Eq. Shareholders A/C)


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Eq. Shareholders A/C Dr

To Cash/ Bank A/C To Eq. Shares in .ltd. A/C

(Being final payment made to Eq. Shareholders)


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B. Purchase Method:

Eq. Share Capital A/C ..Dr.

Realisation A/C..(credit Realiasation A/C if loss). Dr.

To Eq. Shareholders A/C

To Reserves A/C (Other than statutory reserves)

(Being Eq. Share Capital , profit on realisation and sundry reservestransfer to Eq. Shareholdera A/C)


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Eq. Shareholders A/C Dr.

To Preliminary Expenses A/C To Profit & Loss A/C ( Dr. Balance)

To Other Miscellaneous Expenditure A/C

( Being ..transfer to Eq. Shareholders A/C)


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Eq. Shareholders A/C Dr

To Cash/ Bank A/C To Eq. Shares in .ltd. A/C

(Being final payment made to Eq. Shareholders)


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In the books of transferee or vendee company :

1. Purchase Consideration Due:Business Purchase A/C.Dr.

To Liquidators of .ltd. A/C

(Amount payable to ..ltd. as per agreement for business purchase)


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3. Liabilities Paid off:

Debenture in ltd. A/C.Dr. To Debenture A/C

To Premium on Debenture A/C

(Being issue of..to of ltd. With a premium of

Rs..)


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4. Realisation Expenses paid off:

Goodwill A/CDr. To Cash/Bank A/C

(Being realisation expenses paid/reimbursed)


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5. Final Payment:

Liquidators of ltd. A/C..Dr.

To Cash/Bank A/C

To Eq. Share Capital A/C

To Pref. Share Capital A/C

To Securities Premium A/C

(Being final payment made to .ltd. as per agreement)


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6. Mutual indebtness (one company is debtor or creditor to another):

Sundry Creditors A/CDr.

To Sundry Debtors A/C

(Being adjustment for mutual indebtness)

Merger & Amalgamtion Presentation

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