as 14 - accounting for amalgamation
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WELCOME
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Accounting for Amalgamation (AS 14)Venkanna Setty |SSAA & Associates
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Index Introduction Definitions Types of Amalgamation Methods of Accounting for Amalgamations Consideration Disclosures
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Introduction What is Amalgamation ?
Two are More Companies join to form new Company Absorption or blending of one by other
Amalgamation includes Amalgamation Absorption External Reconstruction
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Introduction(Cont..)• Existing Companies A Ltd. And B Ltd. are wound up
and a new company C Ltd. is formed to take over businesses of A & B
Amalgamation
• An existing company A ltd takes over business of B ltd, which is wound upAbsorption
• A new Company X ltd is formed to take over the Business of as existing company Y ltd, which is wound up
External Reconstruction
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Introduction(Cont..)
A Ltd
B Ltd& C LtdAmalgamation
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Introduction(Cont..)• Existing Companies A Ltd. And B Ltd. are wound up
and a new company C Ltd. is formed to take over businesses of A & B
Amalgamation
• An existing company A ltd takes over business of B ltd, which is wound upAbsorption
• A new Company X ltd is formed to take over the Business of as existing company Y ltd, which is wound up
External Reconstruction
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Introduction(Cont..)
A Ltd B Ltd
Absorption
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Introduction(Cont..)• Existing Companies A Ltd. And B Ltd. are wound up
and a new company C Ltd. is formed to take over businesses of A & B
Amalgamation
• An existing company A ltd takes over business of B ltd, which is wound upAbsorption
• A new Company X ltd is formed to take over the Business of as existing company Y ltd, which is wound up
External Reconstruction
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Introduction(Cont..)
X Ltd Y Ltd
External Reconstruction
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Amalgamation“Amalgamation means an amalgamation pursuant to the provisions of the Companies Act, 1956 or any other statute which may be applicable to companies”
Transferor company“Transferor company means the company which is amalgamated into another company”
Transferee company“Transferee company means the company into which a transferor company is amalgamated”
Definitions
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Definitions
A Ltd
B Ltd&
C Ltd
In Amalgamation Example
TransferorTransferee
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Types of Amalgamation
Amalgamation for Accounting Purpose
Amalgamation in thenature of Purchase
Amalgamation in the nature of merger
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Amalgamation in the nature of merger “Amalgamation in the nature of merger is an amalgamation which satisfies all the following conditions
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 become 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 shareholders 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”
Types of Amalgamation (Cont..)
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Amalgamation in the nature of Purchase “ Amalgamation in the nature of purchase is an amalgamation which does not satisfy any one or more of the conditions specified under The Nature of merger”
Types of Amalgamation (Cont..)
1st Condition
2nd Condition
3rd Condition
4th Condition
5th Condition
Merger
Purchase
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Methods of Accounting for Amalgamation
Amalgamation for Accounting Purpose
Amalgamation in thenature of Purchase
Amalgamation in the nature of merger
Pooling of interestsmethod
Purchasemethod
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Methods of Accounting for Amalgamation In Pooling Interest Method
Assets, Liabilities & Reserves of the
transferor companyRecorded at
Existing carrying amounts in the same form as at the date of
amalgamation
Balance of Profit & Loss Account of the
Transferor companyRecorded at
Aggregated with the corresponding balance of the transferee company
transferred to General Reserve
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Methods of Accounting for Amalgamation In Pooling Interest Method
The Difference between amount recorded as share capital issued(Plus any additional considerations in form of cash or any other form) and the share capital of the transferor company is adjusted in reserves in the financial statements of transferee company
Share capital issued (Plus any additional
considerations in form of cash or any other form)
Share capital of the transferor company
Adjusted in reserves of the transferee
company
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Methods of Accounting for Amalgamation In Purchase Method
Assets and Liabilities of the transferor Company
Incorporated at there existing carrying amounts
Consideration allocated to individual identifiable assets and liabilities on the basis of their fair
values at the date of amalgamation
The Profit & Loss A/c Balance of Transferor company, whether it Debit or Credit, loses its identity
OR
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Methods of Accounting for Amalgamation In Purchase Method
Reserves (of the transferor company)
Reserves other than statutory reserves Statutory reserves
Not to be included in the financial statements of the transferee company
To be included in the financial statements of the transferee company
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Consideration MeansAggregate 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
In simple words it is the price payable by the transferee company to the transferor company for taking over the business of the transferor company
Does not Include× The sum which the transferee company will directly pay to the creditors of the
transferor company
Consideration
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It Includes Any non-cash element at fair value In case of issue of securities, fair value is the value fixed by the statutory authorities In case of other assets, the fair value may be determined by reference to the market
value of the assets given up Where the market value of the assets given up cannot be reliable assessed, such
assets may be valued at their respective book value
Consideration (Cont..)
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If Consideration is not equal to Net Assets Value
Consideration (Cont..)
Consideration Net Assets Value Excess Consideration recognized as Goodwill
Consideration Net Assets Value Excess Net assets Value Credited to Reserve
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Both Natures of Amalgamation Names and general nature of business of the amalgamating Companies Effective date of amalgamation for accounting purposes The method of accounting used to reflect the amalgamation and Particulars of the scheme sanctioned under a statute The amount of any difference between the consideration and Value of Net Assets
Acquired
In case Pooling interests method Description and number of issued
In case Purchase Method Description of the consideration paid or payable
Disclosures
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THANK YOUAll the best to all participants