APT

Amalgamation of Companies

developed by Anshul Agrawal

9826484681

Notes
Relevant accounting Standard

14

Amalgamation

1.
2.

3.
4.

Essential conditions for Merger:All assets and Liabilities of the transferor company become the assets and liabilities of
the transferee company after amalgamation at book values.
Shareholders of the transferor company holding not less than 90% of the face value of
equity shares become the shareholder of Transferee Company by virtue of amalgamation.
For the purpose of computing 90%, exclude shares already held prior to amalgamation by
a.
transferee co in Transferor Company.
b.
One or more subsidiaries of Transferee co. in the transferor co.
c.
Nominees of transferee co in the transferor company.
The consideration paid to equity shareholders of the transferor is in the form of equity
shares in the transferee company, except that of cash, which is paid for fractional shares.
The Business of the transferor company is intended to be carried on after the
amalgamation by the transferee company.

Amalgamation in the nature of Purchase;- which is not of nature of merger.

Journal Entries in Books of Transferor Company(whether merger/purchase)

1. Transfer all Recorded assets to realization a/c(including intangible assets like g/w) but
excluding the debit bal. of P&l a/c,Misc expenditure item(preliminary exp., Underwriting
Commission Discount on issue of shares etc.),Cash and bank bal which are not taken over
by the purchasing company. These assets are transferred at there book values/Gross value
irrespective of the fact whether the purchasing company is taking over asset of not.
Realisation a/c Dr.
To Sundry Assets(individually)
2. Transfer only those third party liability which are taken over by the purchasing co.at their
resp .book values ,also transfer those provisions which are created against assets
transferred in entry 1 to gross values(eg. Prov. of bad debts, depreciation).Also provision
of taxation, EPF, Pension fund etc to Realisation a/c but exclude Items of reserves
representing profit portion such as workmen compensation reserve, Dividend
Equalisation reserve General reserve etc. Those third parties liabilities which are not
taken over by the purchasing company should not be transferred to Realisation
account. Only Profit and loss on discharge of such liabilities is transferred to realization.
Sundry Liabilities(individually) Dr.
Assets Specific Provisions
Dr.
To Realisation a/c(total)
3. Make Due The Purchase Consideration

Anshul Agrawal(APT)

Amalgamation
Transferee company a/c Dr.
To Realisation a/c
4. Receipt of Purchase Consideration
Equity Shares in Transferee co.(issue price) Dr.
Pref.Shares in Transferee co.(issue price) Dr.
Debentures in Transferee co.(issue price) Dr.
Bank a/c
Dr.
To
Transferee co.
5. Realisation Expenses
a. Borne by transferor company.
Realisation a/c
To Bank.
b. Borne By Transferee company and paid by transferee company.
NO entry
c. Paid by Transferor Company but reimbursed by transferee company.

Realisation a/c
To Bank.
(amount paid for realization exp is added to purchase consideration)
6. Sale those assets, which are not taken over by purchasing company.
Bank a/c
To Realisation a/c
7. Pay out those liability which are not taken over by purchasing company and adjust any
surplus or deficiency with realization account.
Liability a/c Dr.
Realisation a/c(with loss) Dr.
To Bank a/c
To Realisation a/c(with profit)
8 Discharge the claims of preference shareholders and transfer the difference betwn the
amount actually payable and the book figure to the realization account.
a.Journal entry on making due
Preference share capital Dr.
Realisation a/c(with Loss) Dr.
To Preference Shareholders (with amt payable)
To Realisation (with profit)
b.Journal entry for making payment
Preference share Holder Dr.
To bank
To shares/Deb. Of transferee company.

Anshul Agrawal(APT)

Amalgamation
9. Ascertain profit and loss on realization and transfer the same to the Equity shareholders .
In case of profit
Realisation a/c dr.
To Equity Shareholders
Or
In case of loss.
Equity Shareholders
To Realisation a/c
10. Transfer the equity share capital, accumulated profits, Reserves and losses to the Equity
shareholder`s a/c
Equity Share capital a/c Dr.
GR/P&L a/c/WCR/CR/CRR/DRR a/c Dr.
Dividend Equalisation Reserve a/c Dr
Securities Premium Dr
To Equity shareholder a/c
Transfer losses, preliminary expenses, Underwriting commission etc to shareholder`s a/c
Equity shareholder a/c dr.
To P& l a/c
To Preliminary Exp a/c//Underwriting comm..
To Misc.Expenditure
11 Settle Equity Shareholder`s with consideration received from transferee company.
Equity shareholder a/c dr.
To bank
To shares/Deb. Of transferee company.

Note
The net amount payable to the equity shareholder must be equal to the amount of
consideration received from transferee company as reduced by realization expenses,
amount paid to preference shareholders and amt paid to external shareholders.

Anshul Agrawal(APT)

Amalgamation
Journal Entries in books of Transferee company.(needed to be supported by explanations
of Anshul sir )

Case

Merger

purchase

Acquisition
of Business Purchase a/c
Business
To Liquidator of vendor co.
Recording of assets Assets a/c(all assets at BV)
and liabilities taken General reserve(bal fig.)
over
To Liabilities(at BV)
To Prov.of Bad debts/depr
To Reserves(other than GR)
To GR/P&L a/c (bal fig.)
To Business Purchase a/c

Business Purchase a/c

To Liquidator of vendor co
Assets a/c(at agreed value))
Goodwill(bal fig.)
To Liabilities(at agreed
value)
To Debenture holders
(settlement amount)
To Capital Reserve(bal fig)
To Business Purchase a/c
Taking over statutory NA(as already included in Amalgamation Adj.a/c
Reserve
Reserves)
To Statutory Reserves
Payment of Purchase Liquidator of vendor co a/c
Liquidator of vendor co a/c
Consideration
Discount on issue of Shares
Discount on issue of Shares
To Equity Share capital
To Equity Share capital
To Security Premium
To Pref. Share capital
To Bank(fraction shares)
To Debentures
To Security Premium
To Bank
Settlement of debentu- Debenture(of vendor co.)
Debenture Holder a/c
re of transferor co. by Dis. on issue of Deb.(new)
Dis. on issue of Deb.(new)
issuing deb.
To Debentures(new)
To Debentures(new)
To Premium on issue of
To Premium on issue of
Debentures.
Debentures
Liquidation Exp Borne Liquidation Exp./Gen.Reserve Goodwill/Capital Reserve a/c
By transferee co.
To Bank.
To Bank.
Preliminary Exp of Preliminary Expenses a/c
Preliminary Expenses a/c
transferee co.
To Bank.
To Bank..
Elimination
of
unrealized stock
a.
Purchasing co
a. General Reserve/P&L
a. Capital Reserve/G/w
includes
goods
a/c
a/c
purchased
from
To Stock a/c(with
To
Stock
a/c(with
vendor co.
unrealized Profit)
unrealized Profit
b. Stock of transferor
co
includes goods
purchased
from
transferee co.
Eliminate
co.debts

b. No specific entry.(stock b. No specific entry.(stock

taken over will be reduced taken over will be reduced by
by unrealized profit)
unrealized profit)

Inter Creditors a/c

To Debtors a/c

Creditors a/c
To Debtors a/c

Anshul Agrawal(APT)

Amalgamation
Eliminate Inter co Bill B/P
accepted
To B/R
(excludes that amount which
are discounted by bank or
endorsed to third party)
Eliminate Inter co. Debentures a/c
debentures held as
To Investments a/c
investments by other (surplus or deficiency is adj.
co.
With Gen.Reserves)
Set off of Bal fig.
P&L a/c
To General Reserve
(when there in Dr bal in Gen
Reserve)

B/P
To B/R
(excludes that amount which
are discounted by bank or
endorsed to third party)
Debentures a/c
To Investments a/c
(surplus or deficiency is adj.
With G/w or Cap..Reserves)
Cap Reserve a/c
To Goodwill
(if both arrived in above Bs
.than ad. is to be done with
lesser amount.

** When the debtors of a company included a sum due from another company but the
creditors of another company include a lesser sum due to the former company than the
difference is treated as Cash In Transit .

Anshul Agrawal(APT)

Amalgamation

Practical Questions
Purchase consideration
1. The Balance Sheet of A ltd as on 31st Dec. is given below-(in Rs.000)
Liabilities
Share capital
Equity Shares 10each
8% Pref Shares
12% Debentures
Sundry Creditors

Amount

Assets
Sundry Fixed Assets
5050 Stock
950 Debtors
1500 Cash And Bank
1000
8500

Amount
5000
2000
1000
500
8500

B ltd agrees to take over A ltd by issuing requisite no of Preference shares of Rs.10 each
at 5% discount to the preference shareholders of A ltd. and requisite no. of equity shares
of Rs.10 each at par to the equity shareholders of A ltd. Purchase consideration is settled
as per book values of the assets and the debentures will be taken over by Bltd on the
agreement that these will be paid off at 10% premium after one year. Debenture holders
of A ltd will accept 12% debentures of Krishna Ltd. Calculate Purchase consideration.
Ans:PC Rs.5850/2. PQR ltd was incorporated for the purpose of acquiring P ltd, Q ltd, R ltd .The Balance
Sheet of these companies as on 31st Dec are as follows:
Liabilities
PLtd
Qltd
R ltd
Assets
Equity Share 10/400000
500000
250000 Fixed Assets
P& L a/c
150000
110000
60000 G/w
10% Debentures
70000
40000 other assets
Sundry Creditors
80000
130000
35000
Total
700000
740000
385000 Total
Avg Annual profits before debenture Interest
Professional Valuation of Tangible assets

PLtd
500000

R ltd
300000

200000

Qltd
400000
60000
280000

700000
90000
620000

740000
120000
480000

385000
50000
360000

a. The Directors in their negotiations agreed that (i) The recorded goodwill of Q ltd.
Is valueless .(ii) The other assets of the P ltd are worth Rs.30000.(iii) Valuation in
respect of tangible assets should b accepted.
b. The acquisition agreement provides for the issue of 12% Unsecured Debentures to
the value of the Net assets of the Companies. And for the issuance of Rs.10
nominal value of shares for the capitalized avg. profits of each acquired company
in excess of the Net assets contributed. The capitalization rate is taken at
10%.Calculate PC and form in which it is Discharged.
Ans.830000,1200000,460000
3. A ltd agrees to take over the business of B ltd on the following terms:
a. The shareholders of B ltd are to be paid Rs.25 cash and the offer of four shares of
Rs.10 each in A ltd for every share of B ltd. B ltd has 50000 equity shares
outstanding.
b. The debenture holders holding 5000 debentures of Rs.100 each are to redeemed at
a premium of 10%.
c. Costs of liquidation Amounting Rs.25000 are to be borne by A ltd. Compute
Purchase consideration.
Ans. Rs.3275000

Anshul Agrawal(APT)

85000

Amalgamation
4

Santa Ltd acquired the business of Banta Ltd Whose Balance sheet as on 31/12/07 is as
follows:
Liabilities
8% prf Shares
(Rs 100 each)
Equity Share capital
(Rs 100 each)
Capital Reserve
Profit and Loss a/c
6% Debentures
Outstanding Deb Int
Workmen Comp Reserve
(Expected Liability Rs.8000)
Trade Creditors

Amount
Assets
600000 G/w
Land & Building
Plant and Machinery
1200000 Patents
100000 Stock
50000 Book Debts
200000 Cash at Bank
12000 Underwriting Comm.
12000
120000
2294000

Amount
350000
750000
750000
50000
150000
180000
14000
50000

2294000

Santa Ltd was to take over all assets (except cash) and liabilities(except interest due on
debentures) and to pay following amount:
(i) Rs.200000/- 7% Debentures(Rs.100 each) in Santa Ltd for the existing debentures
in Banta Ltd, For the purpose each debentures of Santa ltd is issued at a premium
of 5%.
(ii) For Each Preference share of Banta Ltd Rs.10/- in cash and one 9% pref. Share of
Rs.100 each In Santa Ltd.
(iii)For each equity share in Zed ltd Rs.20 in cash and one equity share in Santa Ltd
of Rs.100 each having market Value Rs.150.
(iv)Expenses on Liquidation of Banta ltd are to be reimbursed by Santa ltd to the
extent of Rs.15000.Actual expenses amounted to Rs.18000.Realisation Expenses
is to be added to Purchase Consideration .
(v) Value of land and Building is appreciated by 10%,While that of Plant and
Machinery by Rs.50000/-.patents are valued at Rs.20000.
Pass necessary Journal Entries in books of Santa and Banta .Also Prepare BS after
amalgamation.
5. The Following are the Balance sheet of Ena ltd and Meena Ltd. (module)
Liabilities
Share Capital
P&L a/c
Creditors
Loan Deeka ltd

Ena Ltd Meenaltd Assets

Ena Ltd Meenaltd
48000
42000 Sundry Assets
63000
49500
7500
Shares in Meena ltd
30000
22500
9000 P&L a/c
1500
15000
93000
51000
93000
51000

The whole Business of Shares of Ena ltd are held by Deeka Ltd and the entire share
capital of Meena ltd is held by Ena ltd .
A new company EM ltd is formed to acquire the sundry assets and creditors of Ena
ltd and Meena Ltd. For this Purpose the sundry assets and creditors of Ena ltd are
revalued at Rs.45000/- and those of Meena ltd at Rs.30000.The amount of the loan
due to Deeka Ltd is also to be discharged by the way of shares in the new company.
Show the journal entries in all companies books.

Anshul Agrawal(APT)

Amalgamation
6.

The following are the balance sheet of Big ltd and small ltd for the year ending on
31/03/2007.
(module)
in crores
Big ltd Small Ltd
50
40 Fixed Assets
60 Current assets

Equity Share capital(100 each)

Pref share capital
(Rs.100 each)
Reserves and surplus
loans secured

200
100
350

150
100
350

Big ltd Small Ltd

150
150
200
200

350

350

The present worth of fixed assets of Big ltd is Rs.200 crores and that of small ltd is
Rs.429 crores. G/w of Big ltd is Rs.40crores and of small ltd is 75 crores. Small ltd
absorbs Big ltd by issuing equity shares in such a way that intrinsic net worth is
maintained. G/w account is not to appear in the books. Fixed assets are to appear at
old figures. Prepare B.S after absorption.
7.

Following are the balance sheet of Jay ltd and Veeru ltd for the year ending on
31/03/2007
(module)
Jai
Equity share capital
Rs.100 each
Rs.10 each

3,000,000

Veeru

Jai
3,400,000

Fixed Assets
Stock
1,000,000 (pledged with
Secured loan holder) 18,400,000
Current assets
3,600,000
Profit & loss a/c
16,600,000
2,800,000
8,000,000

Pref shares (100 each)

1,000,000
Development Rebate res.
400,000
Gen Reserve
Secured Loans
16,000,000
Unsecured Loan
8,600,000
Current Liability
13,000,000 4,600,000
42,000,000 16,400,000

Veeru
6,800,000

9,600,000

42,000,000 16,400,000

Both the companies amalgamate and formed Sholay ltd. On the basis of following
information
a. All the current assets of the two companies except pledged stock are taken over
by Sholay ltd. The realizable value of all the current assets are 80% of book value
in case of Jai ltd and 70% in case of Veeru ltd.
b. Current liabilities agreed to be taken over at Rs.14200000/- and at Rs.4240000/resp. of Jai and Veeru ltd.
c. Secured loans includes Rs.1600000/- accrued interest in case of Veeru ltd

Anshul Agrawal(APT)