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Assignment
Amalgamation, Absorption & External Reconstructions
I. Amalgamation: - Amalgamation means joining 2 or more company to firm a bigger company. In this
case the two or more company will close down their business and the bigger company which is newly
formed will continues the business.
II. Absorption:- Absorption means an existing company taking over 1 or more company. In this case one or
more company will close down their business and this business will be continued by the name of the
existing company.
III. External Reconstructions:- It is done by loss making company. In this case loss making company will
close down its business and continue the business in the name of the newly formed company.
Old company New company
Amalgamation 2 or more company 1 newly formed company
Absorption 1 or more company 1 existing company
External Reconstruction 1 loss making company 1 newly formed company
Important terms:-
1. Business:- It means asset and liabilities
2. Old company:- It is the selling company or vendor company or amalgamating company.
This company will close down the business and the business will be continued in the name of new
company.
3. New company:- It is the purchasing company or Amalgamated company. The business will be continuing
with the name of this company.
4. Purchase consideration:- It is the amount paid for purchase of business. As per AS14 purchase
consideration is the amount payable to the share holders of old company.
5. Modes of Payment:- It is the manner in which purchase consideration will be discharged usually cash,
equity share, preference share, debentures are the modes of payments.

Method of calculating purchase consideration

1. Lump sum method:- Under this method the purchase consideration amount is directly given in the
question. This method is without any basis of calculation.
2. Payment method:- Under this method the amount of different modes of payment are given the total of all
such payment will determines the total purchase consideration.
3. Net asset method:- Under this method the purchase consideration is calculated by the different asset taken
over at agreed values and liabilities taken over at agreed values. In the question this method will be
followed only if when purchase consideration cannot be calculated by lump sum method or payment
method.
Purchase consideration under this methods is calculated as under:-

Assets taken over ( at agreed value ) xxxx

Less:- Liabilities taken over ( at agreed value ) xxxx
Purchase consideration XXX
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Assignment
M/S _______________________________
Cost sheet for the period_________________________
Quantity manufactured:- ___________________ Workin Total Cost
Quantity Sold:- ___________________ g Cost per
unit
Direct cost:-
Raw material consumed:-
Opening stock of Raw material
Add. Purchase of raw material
Add. Carriage inward
Less. Closing stock of raw material
Direct wages
Direct expenses
Prime cost

Indirect cost
Factory Over Heads
e.g. Power and fuel
Factory rent etc.

less sale of scrap

Gross factory cost
Add. Opening stock of work in progress
Less. Closing stock of work in progress
Net work cost/ Net factory cost/ Factory cost/
Works cost.

Office and Administration Over Heads

e.g. Office salaries
Printing and stationery etc.

Cost of production of goods produced

Add. Opening stock of finished goods
Less. Closing stock of finished goods
Cost of production of goods sold

Selling and Distribution Over Heads.

e.g. Advertisement expenses
Door Delivery

Cost of Sales/ Total Cost

Profit / Loss
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Assignment
Sales