Journal Entries of Merge

 Like demerger in Corporate level business, merge or merger is also common. One of good example we can see in public sector banks. All state bank of patiala merges in State bank of India. Syndicate bank merge into Canera Bank. Oriental bank of commerce (OBC) and United bank of India (UBI) merged  into PNB. So, it is necessary for you to pass the journal entries of merge or merger. 

Before this understand merge or merger

Merge means combine two or more companies into one. All assets and liabilities combines and whole business combines. In other word, in merge one powerful company takes over two or more weak companies. It is also called amalagamation or acquisition.  So, if you are shareholder of a company who merged into other, you will get share also in new company. 

Suppose there is merge of A company and B company into C company, so

A and company is merged company into C company

C company is resulting company

 So for new accountant and also old accountant who do not know about what journal entries will pass at the time merger, this content will be useful. 

1. In the Books of Shareholder

Remember :  the shareholders of Transferor Company will become the shareholders of Transferee Company or resulting company.

Investment in Resulting Or Transferee Company Account Debit 

Profit and Loss Account (If Loss after merge or there is less market value than your invested value) Debit 

Investment in merged or Transferor Company Account Credit 

Profit and Loss Account (If Gain after merge or If profit after merger or there is more market value than your invested value) Credit 

Logic of Above Journal Entry

 

a) Now, your asset changed, so, for showing asset at true name with current company, you need to show debit of resulting or transferee company

b) Loss always debit because resulting or transferee company has decision to give less as per current market situation, you have to show loss in your financial result reports and balance sheet. This may be gain and gain always credit

c) Old company investment is no more after merged and new company has came in the existence. so, old company your asset decrease. So, it will credit

2. In the books of Resulting or Transferee Companies

There are two method of recording this event in the books of resulting or transferee company. 

(A) Pooling of interest Method

(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.

 (B)  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 on basis of net worth ( Total assets -outside liabilities) 

Assets  ( at Takover  or market value or net worth basis ) Account Debit 

Goodwill (If more consideration to shareholders more  than market value - Balancing figure)  Account Debit 

Outside Liabilities ( Current value of debt Takover) Account Credit

Shareholder of merged or transferor company 's Capital Account (Consideration to Shareholders of merged or transferor company ) Credit 

Capital reserve (If more Less consideration to shareholders than market value - Balancing figure)  Account Credit 

Logic of Above Journal Entry

1. When resulting company or transferee  takeover assets, it means its consideration must be given to old shareholders, means old shareholder will get benefit instead consideration to Company's CEO

So, takeover asset is coming of asset in new resulting company, so, it will debit

it may current asset and non current assets 

2. outside liabilities are coming in resulting company, so increasing liability must credit as per journal entry rule. 

3. Now, merged or transferor company's shareholders get consideration for this. So, it will credit

if it is consideration is less than actual market value, it will be the balancing figure as capital reserve. 

In the books of merged or Transferor Companies

merged or transferor company is just like seller who sell his own company to other. So, when new company will take of his assets and liabilites. 

His liabilities will decrease to zero by debit all and his ownership on assets will decrease by credit all assets.

 Merged company's shareholder's liability is also takeover by giving the new shares of new company, so, in merged company, we will debit this share capital by writing resulting company share capital account. 

If merged company get less componsation to shareholder, then it will transfer to profit and loss account as  in the accounts of old transferor company.  

if  merged company get more componsation to its shareholder, then it will transfer to Goodwill as credit in the accounts of merged or transferor company 

Outside Liabilities ( Current value of debt given ) Account Debit

Resulting Company Share capital  Account (Consideration to Shareholders of merged company) Debit 

Capital reserve or profit and loss account (If Less consideration to shareholders than market value - Balancing figure)  Account Debit

Assets  ( at given or transferred at market value ) Account Credit

Goodwill or reserve or profit and loss account (If more consideration to shareholders  than market value - Balancing figure)  Account Credit

Read Also 

[Journal Entries of Demerge]

[Journal Entries of Buy Back] 

[Accounting treatment for amalgamation under AS - 14]