For CA FINAL
What is Amalgamation?
Amalgam
To unite, to come together as one, to blend Amalgamation
Dissolution of one or more business entities and transfer of business of dissolved entities to another entity
Why Amalgamation?
Large Scale Operations To acquire cash resources Increase Shareholders Value
Eliminate duplicate facilities, processes etc.
Tax Savings
Eliminate Competition
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Amalgamation in the nature of Purchase AS-14 An amalgamation should be considered to be an amalgamation in the nature of purchase, when any one or more of the conditions specified in paragraph 29 is not satisfied.
Transactions & Events in Amalgamation Determination of Purchase Consideration (PC) Accounting in the books of the transferor company Accounting in the books of the transferee company.
Determination of PC
Consideration for the amalgamation means the aggregate of the shares and other securities issued and the payment made in the form of cash or other assets by the transferee company to the shareholders of the transferor company. PC = Shares + Other Securities + Cash or other assets
Computation of PC
Computation
Net Assets Method
Aggregate of assets taken over at fair value Less: Liabilities taken over At an agreed amount XXXX XXXX XXXX
In the books of Transferor Company (Transactions & Events) 1. Assets & Liabilities transferred 2. Settlement of assets & liabilities not taken over by transferee company. 3. Purchase consideration due 4. Purchase consideration received 5. Realisation expenses 6. Amount due to shareholders 7. Settlement of shareholders due
No Entry
To Bank A/c
To Transferee A/c
Solution to CD Ltd.
Calculation of PC Particulars Freehold prop. Plant & Furnit. Stocks Debtors Less: Creditors Less: Unrec. Liabi. Net Assets Creative Ltd. 12462 4628 13750 (16182) (240) 14418 LG Ltd. 18000 4864 5562 3664 (18260) 13830
Solution to CD Ltd.
Discharge of PC Total PC Share Capital Issued Cash Recd by CD Ltd. Creative Ltd. 14418 (16000) 1582 LG Ltd. 13830 (15000) 1170
Cross Holdings
Accounting Effect
Accounting Effect
On Selling Co.
On Purchasing Co.
Cancel the investment in Selling Co at book value in take over entry
Cancel the Capital held by Purchasing Co. (as no PC Recd for that Capital) Equity Share Capital A/cDr. To Realisation A/c
Solution to O Ltd.
Calculation of PC Fixed Assets Investments Current Assets 12% Debentures Creditors Net Assets I V Per Share O Ltd. P Ltd. 110 50 18.75 30 40.25 3.25 11 5.5 8 2.75 150 75 15 60
(-)
Solution to O Ltd.
Calculation of PC Total PC (15 x 500000) = 7500000 Less: Share of O Ltd. = 1875000 PC to Outsiders = 5625000
Accounting Impact
Accounting Effect
On Selling Co.
1. Liquidator holding shares in purchasing co @ its cost. 2. Liquidator will receive shares in Purchasing Co as part of the PC @ IP of purchasing Co. 3. Revalue the old shares by taking effect to Realisation A/c.
On Purchasing Co.
No Special Entry
Cross Holding
Impact on PC
Payment Method
1. Compute the Net Assets of Selling Co. 2. Determine the net assets pertaining to Outsiders 3. Determine the mode of discharge 4. Deduct the number of shares already held by Selling Co.
1. Determine the PC to Outsiders 2. Deduct the number of shares already held by Selling Co.
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