What do you mean by amalgamation? What are the different types of amalgamation?

Meaning of Amalgamation:

The term amalgamation is used when two or more companies carrying on similar business go into liquidation and a new company is formed to take over their business.

As per Accounting Standard (AS)-14, Amalgamation means an amalgamation pursuant to the provisions of the Companies Act, 1956 or any other statute which may be applicable to companies. The Council of the Institute of Chartered Accountants of India has issued Accounting Standard-14 Accounting for Amalgamation which states the procedures for accounting for amalgamation

Types of Amalgamation: 

For accounting point of view there are two type of amalgamation :

  1.  Amalgamation in the nature of merger,
  2.  Amalgamation in the nature of purchase.

Amalgamation in the Nature of Merger:

Amalgamation will be treated as Amalgamation in the Nature of Merger when all the following five conditions are satisfied :

All the assets and liabilities of the transferor company become, after amalgamation, 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 becomes equity shareholders of the transferee company by virtue of the amalgamation.

The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholder of the transferee company is discharged by the transferee company wholly by the issue of equity shares in 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 intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies.

The unique attribute of this type of amalgamation are the carry forward of assets and liabilities at book values and the carry forward of retained earnings. There is a pooling of assets and liabilities of the combining entities under this type of amalgamation. In addition, equity shareholders of the transferor companies continue to have a proportionate share in the transferee company.

Amalgamation in the Nature of Purchase:

An amalgamation should be considered to be an amalgamation in the nature of purchase when any one or more of the conditions specified for amalgamation in the nature of merger is not satisfied.

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