Accounting standard 14 provides the guidelines for accounting treatments of amalgamation or mergers. If we see corporate sector, every big company is purchasing other his competitors because of many benefits of monopoly. One of example of Google Inc.
which is USA company and it purchased you tube, feed burner and also interested to buy other companies. In India, Satyam is purchased by tech mahindra. So, it is general word which is famous in corporate sector.
Definition of Amalgamation
( I ) As a merge of two companies into one new companies
Suppose A Co. and B co. merge into a new company C . This is amalgamation .
( II ) If one company is purchased by other company this is also amalgamation .
Suppose A company is purchased by B co. , then this is called A is amalgamated into B Co.
Its definition is under the pursuant of the provisions of Indian Company act 1956 and all rules and regulation of Indian company act will apply on accounting treatment of amalgamation.
System of Accounting in Amalgamation
If you understand the system of accounting in amalgamation, it is so interesting and high professional accountant can treat on correct accounting treatment of amalgamation.
i) Amalgamation by Pooling of Interest or amalgamation as merge
Under this system there are following rules and regulations will apply.
(A) All the assets and liabilities of Transferor Company will become the assets and liabilities of Transferee Company.
(B) All the shareholders of Transferor Company will become the shareholders of Transferee Company.
ii ) Amalgamation by purchase consideration
When a company purchases other company at this time company will pay purchase consideration to its shareholder under following method.
a) Fixed and lump sum amount is given by purchasing company to amalgamating company
Suppose A company is amalgamate into B co. and under agreement B Co. will pay $ 5000000. This is purchase consideration under lump sum method.
b) Net word method
Under this method a company who purchase other company calculates the net word of company and on the basis of net worth, purchase price is determined.
Calculation of purchase price =
Total assets purchased by co. Under agreed value - total liabilities taken by company
Suppose A company purchases B co. and it taken the All assets at $ 100000 and also take its liabilities at $ 20000, then purchase price of company is
= $ 100000 - $ 20000
Company can pay this purchase price in cash, bank or by issuing new shares or debenture by agreement between both companies.
Journal entries of amalgamation related even is as same as dissolution of firm in vendor company .
1. When all assets purchased by other company , all assets will transfer to realization account
Realisation account debit
Assets Account Credit
2. When all liabilities taken by purchasing company , all liabilities will transfer to realization account
Liabilities account debit
Realisation account Credit
3. When purchase price is determined
Purchase company account debit
Realisation account credit
4. when vendor company receives the purchase price
Bank Account debit
Shares in purchasing company account debit
Debenture in purchasing company account debit
purchasing company accounting credit
6. Profit on sale of assets which is not taken over by purchasing company
Bank account debit ( Getting the money from sale of assets )
To assets account ( Book value
To realization account ( Profit )
7. Treatment of liabilities which is not taken by purchasing company
Liabilities account debit
Realisation account debit ( If paid excess to creditors )
Bank account credit
Realisation account credit ( If paid less to creditors )
8. When liquidation expenses paid by vendor company
Realisation account debit
Bank account credit
Closing of realization account
9. If profit on realization account
Realisation account debit
Shareholder account credit
10. If loss
Shareholder account debit
Realization account credit
which is USA company and it purchased you tube, feed burner and also interested to buy other companies. In India, Satyam is purchased by tech mahindra. So, it is general word which is famous in corporate sector.
Definition of Amalgamation
( I ) As a merge of two companies into one new companies
Suppose A Co. and B co. merge into a new company C . This is amalgamation .
( II ) If one company is purchased by other company this is also amalgamation .
Suppose A company is purchased by B co. , then this is called A is amalgamated into B Co.
Its definition is under the pursuant of the provisions of Indian Company act 1956 and all rules and regulation of Indian company act will apply on accounting treatment of amalgamation.
System of Accounting in Amalgamation
If you understand the system of accounting in amalgamation, it is so interesting and high professional accountant can treat on correct accounting treatment of amalgamation.
i) Amalgamation by Pooling of Interest or amalgamation as merge
Under this system there are following rules and regulations will apply.
(A) All the assets and liabilities of Transferor Company will become the assets and liabilities of Transferee Company.
(B) All the shareholders of Transferor Company will become the shareholders of Transferee Company.
ii ) Amalgamation by purchase consideration
When a company purchases other company at this time company will pay purchase consideration to its shareholder under following method.
a) Fixed and lump sum amount is given by purchasing company to amalgamating company
Suppose A company is amalgamate into B co. and under agreement B Co. will pay $ 5000000. This is purchase consideration under lump sum method.
b) Net word method
Under this method a company who purchase other company calculates the net word of company and on the basis of net worth, purchase price is determined.
Calculation of purchase price =
Total assets purchased by co. Under agreed value - total liabilities taken by company
Suppose A company purchases B co. and it taken the All assets at $ 100000 and also take its liabilities at $ 20000, then purchase price of company is
= $ 100000 - $ 20000
Company can pay this purchase price in cash, bank or by issuing new shares or debenture by agreement between both companies.
Journal entries of amalgamation related even is as same as dissolution of firm in vendor company .
1. When all assets purchased by other company , all assets will transfer to realization account
Realisation account debit
Assets Account Credit
2. When all liabilities taken by purchasing company , all liabilities will transfer to realization account
Liabilities account debit
Realisation account Credit
3. When purchase price is determined
Purchase company account debit
Realisation account credit
4. when vendor company receives the purchase price
Bank Account debit
Shares in purchasing company account debit
Debenture in purchasing company account debit
purchasing company accounting credit
6. Profit on sale of assets which is not taken over by purchasing company
Bank account debit ( Getting the money from sale of assets )
To assets account ( Book value
To realization account ( Profit )
7. Treatment of liabilities which is not taken by purchasing company
Liabilities account debit
Realisation account debit ( If paid excess to creditors )
Bank account credit
Realisation account credit ( If paid less to creditors )
8. When liquidation expenses paid by vendor company
Realisation account debit
Bank account credit
Closing of realization account
9. If profit on realization account
Realisation account debit
Shareholder account credit
10. If loss
Shareholder account debit
Realization account credit
really supereb explanation, i heartly thnkx 4 posting.
ReplyDeleteThank you for explanation
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