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Introduction:
Companies carrying on similar business may wish to combine
to avoid competition and to secure the advantage of large-scale
operations this can be done either through amalgamation or adsorption
depending upon wishes of the members the companies concerned
Meaning:
The term amalgamation is used in a wide and narrow sense. In
it’s wide sense any combination of two or more existing companies together
to form a new company. In it’s narrow sense when two or more existing
companies carrying on similar business go into liquidation and farm
themselves into a new company to takeover the existing business.
Eg;
Existing A and B company winding up their business and farm a new
company
called X. X company takeover the business of A and B company .
Types of Amalgamation;
According to accounting standards 14 there are two
types of amalgamations .
a) Amalgamation in the nature of merges .
b) Amalgamation in the nature of purchase.
a) Merger:
The following are the conditions for mergers
1. All the assets and liabilities of the transferor company after
amalgamation becomes the assets and liabilities of transferee company.
2. Shareholders of transferor company will become the shareholder of
transferee company.
3. The transferee company will pay purchase consideration by way of
equity shares in the transferee company except cash may be paid in
respect of fractional shares.
4. The business of transferor company after amalgamation is carried
on by transferee company .
5. No adjustments will be made to the books of all the assets and
liabilities of the transferor company except to ensure uniformity of
accounting policy .
b) Purchase;
The following are the conditions in the nature of purchase.
1. All the assets and liabilities of transferor company may not become the
assets and liabilities of transferor company after amalgamations .
2. The shareholders of transferor company may or may not become equity
shareholders of the transferee company up to 90% of the shareholding.
3. the purchase consideration may be given in the farm of cash. Share
and debentures from transferee company
4. The transferee company is not intends to carry on the business of
transferor company after amalgamation
5. The assets and liabilities of the transferor company is incorporated in
the books of transferee company at adjusted values
Purchase consideration:
Purchase consideration is the price payable by
the purchasing company to the vendor company as a consideration for
having taken over it’s business .the purchase consideration mainly paid in
the term of cash, shares and debentures or in all these farms.