business combination 2

8/8/2019 Business Combination 2

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Business CombinationsIntroduction & OverviewAmalgamation

Absorption

Re-construction

Summary & Exercises


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Introduction & OverviewAmalgamation

A +B = C

Absorptiona + b = A

ReconstructionCompanys Capital is Re-organized


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AbsorptionSimilar to Amalgamation Except No NewCompany Formed.

Assets & Liabilities Taken Over Are Transferredto Existing Accounts in Company Taking OverOther(s)

Accounting Procedures to Shut DownCompanies Being Taken Over are Same as ForAmalgamation


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Reorganization/reconstru

ctionInternal Reconstruction of Capital Structure. No liquidation OR formation of new

company (Shrinking the Firm) To show the true and fair view of the companyby w/o past and write down assets to reflecttheir true worth.

Reduce face value of shares and show theirtrue worth.Create confidence amount share holders byassuring them a fair return on their investment


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ReorganizationApproaches/OptionsEliminating or Reducing Shareholders Liabilityon Unpaid Up Share Capital.

Amounts Unpaid Are Written Off or Down

Paying Off Surplus Share Capital.Cancelling Paid Up Share capital Not

Represented by Assets.Revaluing Assets*Reducing Creditors Claims


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ReorganizationAccounting ProceduresAmounts Written Off Are Transferred toReorganization Account

Balance in the Reorganization AccountCapitalized and Amortized Over Agreed Period.i.e Profit/Loss on Reorganization Reported as

Capital Reserve and Will be Written Off OverAgreed Period of Time


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ReorganizationCommon Accounting Entries.1. Reducing Share Capital

Dr Share CapitalCr Reorganization A/C

2. Writing Off Excess Asset Values*Dr Reorganization

Cr Asset A/c* Adjustment to Carrying Cost


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Reorganization3. Paying Off Excess Share CapitalDr Share Capital

Cr Bank4. Reducing Liabilities

Dr CreditorsCr Reorganization

5. Writing Off LosesDr. Reorganization

Cr Profit & Loss


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Reorganization6. Issue of Shares as Payment for LiabilitiesDr Liabilities

Cr Share Capital7. Conversion of Pref Share Capital to

Ordinary Share Capitala. Dr Pref Share Capita

Cr Reorganizationb. Dr Reorganization

Cr Ordinary share Capital


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SummaryAmalgamation V/s Absorption

Reorganization V/s Reconstruction

business combination 2

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