UrbanPro
true

Take BBA Tuition from the Best Tutors

  • Affordable fees
  • 1-1 or Group class
  • Flexible Timings
  • Verified Tutors

Search in

Solve Amalgamation Problem In 7 Steps

F
FR Prashanth Reddy
16/01/2018 0 0

Step 1:

Identify nature of Amalgamation: If the six conditions of amalgamation in nature of merger not satisfied then it is treated as amalgamation in nature of purchase. If the information provided in the question is not sufficient to decide the nature of amalgamation or question is silent on the nature of amalgamation then it is better to assume the nature of amalgamation as purchase.

Step 2:

Method of accounting: After identifying the nature of amalgamation the method of accounting is determined, it may be as follows:

Nature of Amalgamation

Method of Accounting

Merger

Pooling of Interest Method

Purchase

Purchase Method

Step 3:

Purchase consideration: Purchase consideration is amount payable by transferee company (purchasing accompany) to transferor company (selling company) at the event of amalgamation. The payment may be in the mode of shares, debentures and cash. The purchase consideration may be in lump sum payment or based on net assets of selling company. 

Lump Sum Payment/Payment Method

Net Assets Method

Aggregate of consideration paid to share holder (equity and preference) in various forms

Aggregate of assets taken over at fair value                                    XXX

Less:

Liabilities taken over at agreed

 amounts                                XXX

Net assets                            xxxx

Note: In case of pooling of interest method the 90% shareholders of selling company will get consideration in the form of equity shares. The consideration paid by the purchase company may be in following cases:

Particular

Merger nature

Purchase nature

Case 1

Consideration paid is more than paid up capital of selling company

Consideration paid is more than net assets of selling company

Case 2

Consideration paid is less than paid up capital of selling company

Consideration paid is less than net assets of selling company

Step 4:

Discharge of purchase consideratio: Purchase consideration is discharged by transferee company(purchasing co) in various forms. After computation of purchase consideration it is discharged in the forms of shares at different values, It may be issued by debentures and by cash etc.

Step 5:

Accounting in the books of transferor company (Selling company). The selling company has to close all accounts by transferring to realization account except shareholders account. The shareholders account is prepaid and closed after passing necessary entries. Journal entries for the same can be find in part – 2 of amalgamation article.

Note: Before attempting the question just clarify whether there is any requirement of passing journal entries in the books of transferor(Selling Co)

Step 6:

Computation of Profit / loss in case of amalgamation for transferee company(Purchasing co)

As accounting standard 14 the profit or loss should be recognized in the following way:

Particular

Amalgamation in the nature of merger

Profit or Loss

Case 1

Consideration paid is morethan paid up capital of selling company

It is loss for the purchasing company and the same should be adjusted against free reserves of selling company and purchasing company

Case 2

Consideration paid is lessthan paid up capital of selling company

It is Profit for the purchasing company and the same should be treated as capital reserve in the books of purchasing company

 

Particular

Amalgamation in nature of purchase

Profit or Loss

Case 1

Consideration paid is morethan net assets of selling company

It is loss for the purchasing company and the same should be treated as goodwill in the books of purchasing company

Case 2

Consideration paid is lessthan net assets of selling company

It is Profit for the purchasing company and the same should be treated as capital reserve in the books of purchasing company

Step 7:

Accounting in the books of transferee (purchasing company). Transferee company (Purchasing company) has to merge all assets and liabilities taken over at fair value

Note: Before attempting the question just clarify whether there is any requirement of passing journal entries in the books of transferee(Purchasing Co).

In the most of the questions they will ask to prepare balance sheet after amalgamation.

0 Dislike
Follow 6

Please Enter a comment

Submit

Other Lessons for You

Concept of Economics
Economics: Economics in general is about making Choices in the presence of Scarciy. The two words, Choice and Scaricity are important here. Choice involve when there is excess availability and Scarcity...

A Glimpse of the Accountancy subject for the BBA Students
Dear BBA/ BBM Students, Accountancy is a very practical subject. This subject is viewed equally scoring as well as difficult by most of the BBA/BBM students. Discipline and meticulousness in terms of...

Cost of Debt
A company may borrow funds/obtain debt funds, and it has to pay interest on the amount borrowed which is usually a fixed rate of interest. Payment of interest is a charge on profits on the company. There...


Benami Transactions
Prohibition of Benami Property Transaction Act, 1988, amended by Amendment Act 2016 An Act which prohibits Benami transactions and right to recover property held as Benami by benamidar and also proceeds...

Looking for BBA Tuition ?

Learn from Best Tutors on UrbanPro.

Are you a Tutor or Training Institute?

Join UrbanPro Today to find students near you
X

Looking for BBA Tuition Classes?

The best tutors for BBA Tuition Classes are on UrbanPro

  • Select the best Tutor
  • Book & Attend a Free Demo
  • Pay and start Learning

Take BBA Tuition with the Best Tutors

The best Tutors for BBA Tuition Classes are on UrbanPro

This website uses cookies

We use cookies to improve user experience. Choose what cookies you allow us to use. You can read more about our Cookie Policy in our Privacy Policy

Accept All
Decline All

UrbanPro.com is India's largest network of most trusted tutors and institutes. Over 55 lakh students rely on UrbanPro.com, to fulfill their learning requirements across 1,000+ categories. Using UrbanPro.com, parents, and students can compare multiple Tutors and Institutes and choose the one that best suits their requirements. More than 7.5 lakh verified Tutors and Institutes are helping millions of students every day and growing their tutoring business on UrbanPro.com. Whether you are looking for a tutor to learn mathematics, a German language trainer to brush up your German language skills or an institute to upgrade your IT skills, we have got the best selection of Tutors and Training Institutes for you. Read more