Distinguish between amalgamation in the nature of merger and amalgamation in the nature of purchase.
Amalgamation in the Nature of Merger:
In this case, there is a genuine pooling not merely of assets and liabilities of the amalgamating companies but also of the shareholder interest and surplus of the business of two companies. All the as sets and liabilities including reserves and surplus of the transferor company, after amalgamation, become the assets and liabilities of the transferee company. Equity shareholders of the combining entities continue to have a proportional share in the combining entity.
The business of the transferor company is intended to be carried on, after amalgamation, by the transferee company.
Pooling of Interest Method is used for accounting in the books of transferee company.
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The excess of the purchase consideration over the share capital of transferor company is debited to Reserve and the excess of share capital over purchase consideration is Credited to reserve.
In this case, for carry forward of any statutory reserve by the transeree company, Amalgamation Adjustment A/c is debited and credit is given,to the concerned statutory reserve by the transferee company.
Amalgamation in the Nature of Purchase
It is a made by which one company acquires another company and equity shareholders of the combining entities do not continue to value proportionate share in the combining entity.
The business of the acquired company may not intended to be continued.
Purchase Method is used for accounting in the books of transfere company.
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The excess of purchase consideration over the net assets is treated as Good will and the excess of net asset over Purchase consideration is treated as Capital Reserve.
In this case, Amalgamation Adjust-went A/c is not to be opened far take over of the statutory reserve.