As 14

Accounting Standard (AS) 14
Accounting for Amalgamations
IPCC Paper 1 Accounting ,Chapter 1

CA.Karan Chopra
Agenda
Introduction
Definitions
Types of Amalgamation
Amalgamation in the Nature of Merger
Amalgamation in the Nature of Purchase
Methods of accounting for Amalgamations
Pooling of Interest Method
Purchase Method
Consideration for Amalgamation
Amortization of Goodwill (Purchase Method)
Illustration 1 : Calculation of Purchase Consideration
Illustration 2 : Journal entries in the books of the Transferee Co.
Illustration 3: Journal entries in the books of the Transferor / Vendor Co.
Disclosures
Introduction
What is Amalgamation?
Two or more companies are combined into one by merger or by one taking
over the other
Two or more companies join to form a new Company
Absorption or blending of one by the other
Introduction (Cont)
Examples of Amalgamation?
Existing companies A Ltd. and B

Ltd. are wound up and a new
company C Ltd. is formed to take
over the businesses of A & B
Amalgamation
An existing company A ltd takes

over the business of another
existing company B ltd, which is
wound up.
Absorption
A new company X ltd is formed to

take over the business of an
existing company Y ltd, which is
wound up
External reconstruction
Introduction (Cont)
Why Amalgamate?
Economies of large Scale

Operations
To acquire cash resources
Eliminate duplicate
facilities, processes etc.
Increase shareholders
value
Eliminate Competition
Tax Savings
Agenda
Introduction
Definitions
Purchase Method
Illustration 1: Calculation of Purchase Consideration
Disclosures
Definitions
AS 14 Accounting for Amalgamations defines amalgamation as
Amalgamation means an amalgamation pursuant to the provisions of the

Companies Act, 1956 or any other statute which may be applicable to
companies
Transferor or the Vendor company
The company which is amalgamated into another company.
Definitions (Cont)
Transferee company
The company into which a transferor company is amalgamated
Reserve
The portion of earnings, receipts or other surplus of an enterprise (whether

capital or revenue) appropriated by the management for a general or a
specific purpose other than a provision for depreciation or diminution
in the value of assets or for a known liability.
Definitions (Cont)
Example of transferee & transferor company
Existing companies A Ltd. and B Ltd. are wound up and a new company C
Ltd. is formed to take over the businesses of A & B
In this example, A ltd and B ltd are the transferor companies and C ltd is
the transferee company
Agenda
Introduction
Definitions
Purchase Method
Disclosures
10
Amalgamation for Accounting

purpose
Amalgamation in the
Nature of Merger
Amalgamation in the
Nature of Purchase
11
Agenda
Introduction
Definitions
Purchase Method
Disclosures
12
Conditions: Amalgamation in the Nature of

Merger
All assets and
Liabilities
Not less than 90%

of the face value
All assets and liabilities of the transferor company

become 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 the equity shareholders of the transferee
company by virtue of the amalgamation
For the purpose of computing 90% exclude the
Shares already held prior to amalgamation by:
Transferee company in the transferor company
One or more subsidiaries of the transferee company
Nominees of the transferee company
13

Merger (Cont..)
Issue of equity shares in

the transferee
company
Business intended to be
carried on
The consideration for the amalgamation

receivable by those equity shareholders of the
transferor company who agree to become
shareholders of the transferee company is
discharged by the transferee company wholly
by the issue of equity shares in the transferee
company, except that the cash may be paid in
respect of fractional shares.
The business of the transferor company is

intended to be carried on, after the
amalgamation, by the transferee company
14

Merger (Cont..)
No adjustments is
intended to be made to
the book
values
No adjustments 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.
15
Agenda
Introduction
Definitions
Purchase Method
Disclosures
16
An amalgamation should be considered to be an amalgamation in the

nature of purchase, when any one or more of the conditions specified
in Amalgamation the nature of merger is not
satisfied.
17
Agenda
Introduction
Definitions
Purchase Method
Disclosures
18
Consideration
Consideration means:
aggregate 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.
19
Consideration (Cont)
Consideration for amalgamation should include:
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 reliably assessed,
such assets may be valued at their respective net book values
20
Contingent Consideration
If payment is :
Probable, and
Reasonable estimate
of the amount can be
made
Include additional
payment in
Consideration
In all other cases,

recognize adjustment
as soon as the amount
is determinable
Accounting Standard
(AS) 4, Contingencies
and Events Occurring
After the Balance Sheet
Date
21
Consideration > Net Asset
value
Recognized in the
transferee companys
financial statements
as
Goodwill arising on
amalgamation
Consideration < Net Asset

value
Difference
Credited to Capital
Reserve
22
Agenda
Introduction
Definitions
Purchase Method
Disclosures
23

Amalgamation in the NATURE
OF MERGER
Amalgamation in the NATURE

OF PURCHASE
Pooling of interests method
Purchase method
24
Agenda
Introduction
Definitions
Purchase Method
Disclosures
25
Accounting under Pooling of interests

method
Existing carrying amounts
Assets and liabilities
of the transferor
company:
Balance of the Profit

and Loss Account of
the transferor
company
Recorded at
In the same form as at the date
of the amalgamation
Aggregated with the

corresponding balance of the
transferee company
Transferred to the General
Reserve
26
Reserves under Pooling of interests method :

Amalgamation in the
Nature of merger
Identity of reserves is
preserved and they
appear in the financial
statements of the
Transferee Company in
the same form as they
appear in the financial
statements of the
transferor company
For example: Reserves which are available for distribution as dividend before
the amalgamation would also be available for distribution as dividend after the
amalgamation
27
Share Capital under Pooling of interests

method :
Difference between
Amount recorded as share

capital issued (plus any
additional consideration in the
form of cash or other assets)
The amount of share capital of

the transferor company
Adjusted in reserves
28
Conflicting Accounting Policies under Pooling

of interests method :
Where there are Conflicting
accounting policies in the
transferor and transferee
company
A uniform set
of accounting
policies is
adopted
Accounting Standard (AS) 5,

Net Profit or Loss for the
Period, Prior Period Items and
Changes in Accounting
Policies
Changes in
accounting
policies
reported in
accordance
with
29
Example: Amalgamation in the Nature of merger

Consider the following Balance Sheet of X Ltd. And Y Ltd.
Liabilities
X Ltd
Y Ltd.
Assets
(in 000 Rs.) (in 000 Rs.)

Equity share Capital
(Rs. 10 each)
14% Preference share
capital, Rs. 100 each, fully
paid up
X Ltd
Y Ltd.
(in 000 Rs.) (in 000 Rs.)
5000
3000
Land and Building
2500
1550
2200
1700
Plant and Machinery
3250
1700
General Reserve
500
250
Furniture and Fittings
575
350
Export Profit Reserve

Investment Allowance
Reserve
300
200
Investments
700
500
100
Stock
1250
950
Profit and Loss Account

13% Debentures, Rs. 100
each, fully paid up
750
500
Debtors
900
1030
500
350
Cash & Bank
725
520
Trade Creditors
450
350
Other Current Liabilities
200
150
9900
6600
9900
660030
Example: Amalgamation in the Nature of merger

(Cont)
X Ltd. Takes over Y Ltd. On 1 April, 2012. X Ltd. Discharges the purchase
consideration as below:
(i) Issued 3,50,000 equity shares of Rs. 10 each at par to the equity
shareholders of Y Ltd.
(ii) Issued 15% preference shares of Rs. 100 each to discharge the
preference shareholders of Y Ltd. At 10% premium.
The debentures of Y Ltd. Will be converted into equivalent number of
debentures of X Ltd. The statutory reserves of Y Ltd. Are to be
maintained for 2 more years.
On the assumption that this is Amalgamation is in the nature of merger,
what amounts would appear in the Balance Sheet for the following items:
Share Capital
Reserves and Surplus
Long Term Borrowings
Tangible assets
31
Notes to Accounts : Share Capital (1)

Particulars
Amount
(in 000's Rs.)
Equity Share Capital

Existing share Capital of X Ltd.
Share Capital issued to equity shareholders of Y Ltd.
(3,50,000 X Rs. 10 each)
5000
3500
8500
Preference Share Capital

22,000, 14% Preference shares of Rs. 100 each
2200
1870
TOTAL SHARE CAPITAL in the Books of X Ltd.
4070
12570
32
Notes to Accounts: Reserves and Surplus (2)

Particulars
Amount
(in 000's Rs.)
General Reserve of X Ltd.
500
Add: General Reserve of Y Ltd.
250
750
Less: Adjustment for Amalgamation ** (See working below)
(670)
Export Profit Reserve of X Ltd.
300
Add: Export Profit Reserve of Y Ltd.
200
Investment Allowance Reserve
80
500
100
Profit & Loss A/C of X Ltd.
750
Add: Profit & Loss A/C of Y Ltd.
500
1250
1930
** The difference between the amount recorded as share capital issued and the amount of
share capital of the transferor company should be adjusted in reserves:
General Reserve = Rs. 000s [ 750 (5370 4700)] = Rs. 80
33
Notes to Accounts: Long term borrowings (3)

and Tangible Assets (4)
Particulars
Amount
(in 000's Rs.)
Long term Borrowings

Secured
8500 13% Debentures of Rs. 100 aech
850
Tangible Assets
Land and Building (2500 + 1550)
4050
Plant and Machinery (3250 + 1700)
4950
Furniture and Fittings (575 + 350)
925
9925
34
Balance Sheet of X Ltd.

Equity & Liabilities
Notes Rs. In 000's Assets
Share Capital
12,570
Reserves & Surplus
1,930
Tangible Assets
Notes
Rs. In 000's
9,925
Non current Investments
1,200
850
Inventories
2,200
Trade Payables
800
Trade Receivables
1,930
350
Cash & Cash Equivalents
1,245
16,500
16,500
35
Agenda
Introduction
Definitions
Purchase Method
Disclosures
36
Assets and Liabilities under Purchase method
Assets and liabilities of the transferor company
Incorporated at
their existing carrying amounts
Or
Consideration allocated to
individual identifiable assets
and liabilities on the basis of
their fair values at the date of
amalgamation
37
Reserves under Purchase method

Reserves (of the transferor
company), other than the
statutory reserves
Not be included in the

financial
statements of the
transferee company
except
Where, the transferee company is complying

with a relevant statute for recording Statutory
reserves
Such Statutory reserves
incorporated in the Balance
sheet of Transferee Company
Dr. Amalgamation
Adjustment
****
Cr. Statutory Reserve
****
When such reserves are not required, eliminate

reserve by reversing the above entry
38
Balance of Profit & Loss under Purchase method
Amalgamation in the nature

of purchase
Loses its identity
Balance of the Profit

and Loss Account of
the transferor
company,
Whether Debit or
credit
39
Example: Amalgamation in the Nature of

Purchase
Refer same example as in the above slides:
On the assumption that this is Amalgamation is in the nature of Purchase,
what amounts would appear in the Balance Sheet for the following items:
Share Capital
Long Term Borrowings
Tangible assets
40
Notes to Accounts : Share Capital (1)

Particulars
Amount
(in 000's Rs.)

Existing share Capital of X Ltd.
Share Capital issued to equity shareholders of Y Ltd.
(3,50,000 X Rs. 10 each)
5000
3500
8500

2200
1870
TOTAL SHARE CAPITAL in the Books of X Ltd.
4070
12570
41
Notes to Accounts: Reserves and Surplus (2)

Particulars
Amount
(in 000's Rs.)

Capital Reserve ** (see below)
General Reserve
Export Profit Reserve (300+200)
Investment Allowance Reserve (100 of Y Ltd.)
Surplus (Profit & Loss A/c)
380
500
500
100
750
2230
** Capital Reserve arising on Amalgamation:

(A) Net Assets taken over
Sundry Assets
Less: 13% Debentures
Trade Creditors
Other current liabilities
(B) Purchase Consideration
To Equity shareholders of Y Ltd.
To Preference shareholders of Y Ltd.
(C) Capital Reserve (A - B)
Rs. (000's)
350
350
150
Rs. (000's)
6600
850
5750
3500
1870
5370
380
42
Notes to Accounts: Long term borrowings (3) ,Tangible

Assets (4) and Other non current assets (5)
Particulars
Amount
(in 000's Rs.)

Secured
8500 13% Debentures of Rs. 100 aech
850
Tangible Assets
Land and Building (2500 + 1550)
4050
Plant and Machinery (3250 + 1700)
4950
Furniture and Fittings (575 + 350)
925
9925
Other Non Current Assets

Amalgamation Adjustment Account (assumed to be
maintained for more than a year) (for statutory reserves of Y
:Ltd. 200+100)
300
300
43
Balance Sheet of X Ltd.

Equity & Liabilities
Notes Rs. In 000's Assets
Rs. In 000's
Share Capital
12570
Reserves & Surplus
2230
Non current Investments
850
Other Non current assets
Trade Payables
800
Inventories
2200
350
Trade Receivables
1930
Cash & Cash Equivalents
1245
16800
Tangible Assets
Notes
9925
1200
300
16800
44
Agenda
Introduction
Definitions
Purchase Method
Disclosures
45
Amortization of Goodwill
Goodwill arising on
amalgamation
Unless a longer period

can be justified
Amortized on a
systematic basis over its
useful life
and
Amortization period
should not exceed five
years
46
Amortization of Goodwill (contd.)

Factors which may be considered in estimating the useful life of goodwill
arising on amalgamation include:
the foreseeable life of the business or industry;
the effects of product obsolescence, changes in demand and other economic
factors;
the service life expectancies of key individuals or groups of employees;
expected actions by competitors or potential competitors; and
legal, regulatory or contractual provisions affecting the useful life.
47
Agenda
Introduction
Definitions
Purchase Method
Disclosures
48
Illustration 1:
A Ltd. Takes over B Ltd. On April 1, 2006 and discharges consideration for the
business as follows:
(i) Issued 42,000 fully paid equity shares of Rs. 10 each at par to the equity
shareholders of B Ltd.
(ii) Issued fully paid up 15% preference shares of Rs. 100 each to discharge
the preference shareholders (Rs. 1,70,000) of B Ltd. At a premium of 10%
.
(iii) It is agreed that the debentures of B Ltd. (Rs. 50,000) will be converted
into equal number and amount of 13% debentures of A Ltd.
Calculate the amount of Purchase consideration?
49
Illustration 1: (Solution)
Particulars
Rs.
Equity shares (42,000 shares X Rs. 10 per share)

Add: Premium on Redemption
Purchase Consideration
Rs.
4,20,000
1,70,000
17,000
1,87,000
6,07,000
50
Agenda
Introduction
Definitions
Purchase Method
Disclosures
51
Illustration 2:
Following are the summarized Balance Sheets of A Ltd. (Rs.) and B Ltd. (Rs.) as on
March 31, 2011:
Liabilities
Equity shares, Rs. 10 each,
fully paid up
14% Preference share
capital, Rs. 100 each, fully
paid up
Securities Premium
A Ltd
Creditors
Provision for taxation
A Ltd
B Ltd.
3,00,000
Goodwill
2,00,000
1,50,000
1,70,000
Land and Building
2,50,000
Plant and Machinery
3,25,000
2,70,000
57,000
95,000
2,15,000
1,75,000
72,000
30,000
1,50,000
80,000
Export Profit Reserve

Workmen Compensation
fund
13% Debentures, Rs. 100
each, fully paid up
Assets
7,20,000
Capital Reserve
General Reserve
B Ltd.
75,000
13,000
Furniture and Fixtures
45,000
Stock
20,000
Debtors
40,000
Income Tax Refund Claim
60,000
6,000
3,000
Cash at Bank
2,16,000
1,00,000
50,000
Cash in Hand
70,000
1,15,000
35,000
15,000
14,05,000
10,000
6,86,000
14,05,000
50,000
6,86,000
52
Illustration 2: (Cont)
A Ltd. Takes over B Ltd. On April 1, 2006 and discharges consideration for
the business as follows:
(i) Issued 42,000 fully paid equity shares of Rs. 10 each at par to the equity
shareholders of B Ltd.
(ii) Issued fully paid up 15% preference shares of Rs. 100 each to discharge
the preference shareholders of B Ltd. At a premium of 10% .
(iii) It is agreed that the debentures of B Ltd. (Rs. 50,000) will be converted
into equal number and amount of 13% debentures of A Ltd.
(iv) The Statutory Reserves of B Ltd. Is to be maintained for two more years.
(v) Expenses of amalgamation amounting to Rs. 15,000 are borne by A Ltd..
Pass Journal entries in the books of A Ltd. When this is :
Amalgamation in the nature of merger ;
Amalgamation in the nature of purchase
53
Solution: Amalgamation in the nature of

merger
Since all the five conditions are satisfied, it is amalgamation in the nature of merger.
Following Journal entries will be passed in the books of A Ltd. :
Particulars
JOURNAL ENTRY 1:
Goodwill Account
Plant and Machinery Account
Furniture and Fixture Account
Stock Account
Debtors Account
IT Refund Account
Bank Account
General Reserve Account (Balancing Figure)
To Capital Reserve Account
To Export Profit Reserve Account
To workmen Compensation Fund Account
To 13% Debentures Account
To Creditor Account
To Provision for Tax Account
To Business Purchase Account
Dr. (Rs.)
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
Cr.
Cr.
Cr.
Cr.
Cr.
Cr.
Cr.
Cr. (Rs.)
60,000
2,70,000
95,000
1,75,000
30,000
6,000
50,000
52,000
13,000
20,000
3,000
50,000
35,000
10,000
6,07,000
(Being the assets, liabilities and reserves of the transferor
company recorded
by the transferee company at their existing carrying amount)
54

merger (Cont)
Particulars
JOURNAL ENTRY 2:
Business Purchase Account
To Bs Liquidator Account
Dr. (Rs.)
Dr.
Cr.
6,07,000
Dr.
Cr.
Cr.
6,07,000
Dr.
Cr.
50,000
Dr.
Cr.
15,000
Cr. (Rs.)
6,07,000
Being consideration made due to the liquidators of B Ltd.
JOURNAL ENTRY 3:
Bs Liquidator Account
To Equity Share Capital Account
To Preference Share Capital Account
4,20,000
1,87,000
Being consideration paid to liquidators of B Ltd.
JOURNAL ENTRY 4:
13% Debentures Account (in B Ltd.)
To 13% Debentures Account (in A Ltd.)
50,000
Being 13% debentures of B Ltd. Converted into equal number and amount of
13% debentures of A Ltd.
JOURNAL ENTRY 5:
General Reserve Account
To Bank Account
15,000
Being expenses of amalgamation amounting to Rs. 15,000 borne by A Ltd

55

Purchase
If we consider that the fifth point i.e. business of B Ltd. Was not carried on by A Ltd.
Then it will be amalgamation in the nature of Purchase. Journal entries as follows:
Particulars
JOURNAL ENTRY 1:
Goodwill Account (Balancing figure)
Plant and Machinery Account
Furniture and Fixture Account
Stock Account
Debtors Account
IT Refund Account
Bank Account
To 13% Debentures Account
To Creditor Account
To Provision for Tax Account
To Business Purchase Account
Dr. (Rs.)
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
Cr.
Cr.
Cr.
Cr.
76,000
270,000
95,000
175,000
30,000
6,000
50,000
Dr.
Cr.
6,07,000
Cr. (Rs.)
50,000
35,000
10,000
6,07,000
Being the assets and liabilities of the transferor company recorded by the
transferee company at their existing carrying amount)
JOURNAL ENTRY 2:
Business Purchase Account
To Bs Liquidator Account
6,07,000
Being consideration made due to the liquidators of B Ltd.

56

Purchase (Cont)
Particulars
JOURNAL ENTRY 3:
Bs Liquidator Account
To Equity Share Capital Account
To Preference Share Capital Account
Dr. (Rs.)
Dr.
Cr.
Cr.
6,07,000
Dr.
Cr.
50,000
Dr.
Cr.
15,000
Dr.
Cr.
20,000
Cr. (Rs.)
4,20,000
1,87,000
Being consideration paid to liquidators of B Ltd.
JOURNAL ENTRY 4:
13% Debentures Account (in B Ltd.)
To 13% Debentures Account (in A Ltd.)
50,000
Being 13% debentures of B Ltd. Converted into equal number and amount of
13% debentures of A Ltd.
JOURNAL ENTRY 5:
Goodwill Account
To Bank Account
15,000
Being expenses of amalgamation amounting to Rs. 15,000 borne by A Ltd
JOURNAL ENTRY 6:
Amalgamation Adjustment Account
To Export Profit Reserve Account
20,000
Being retaining the identity of Statutory reserves by making a corresponding

debit to a suitable account head Amalgamation adjustment Account
57
Agenda
Introduction
Definitions
Purchase Method
Disclosures
58
Illustration 3: (Journal entries to close the books of

the Vendor / Transferor company )
Wye Limited acquires the business of Z Ltd. Whose balance sheet as on 31
December, 2012 is as under:
Liabilities
Share Capital divided into shares of Rs.
100 each
Z Ltd.
Assets
Z Ltd
Goodwill
2,00,000
6% Preference share capital
4,00,000
Land and Building
4,00,000
8,00,000
Plant and Machinery
6,00,000
Capital Reserve
1,00,000
Patents
50,000
Stock
1,50,000
Book Debts
1,80,000
6% Debentures
2,00,000
50,000
Interest outstanding on above
12,000
Cash at Bank
70,000
Workmen Compensation Reserve

(Expected Liability Rs. 5,000)
8,000
Underwriting Commission
40,000
Trade Creditors
1,20,000
16,90,000
16,90,000
59
Illustration 3: (Cont)
Wye Ltd. Was to take over all assets (except cash) and liabilities (except
for interest due on debentures) and to pay following amounts:
(i) Rs. 2,00,000 7% Debentures (Rs. 100 each) in Wye Ltd. For the existing
debentures in Z Ltd. ; for the purpose, each debenture of Wye Ltd. is to
be treated as worth Rs. 105.
(ii) For each preference share in Z Ltd. Rs. 10 in cash and one 9%
preference share of Rs. 100 each in Wye Ltd.
(iii) For each equity shares in Z Ltd. Rs. 20 in cash and one equity share in
Wye Ltd. Of Rs. 100 each having the value of Rs. 140
(iv) Expense of liquidation of Z Ltd. Are to be reimbursed by Wye Ltd. To the
extent of Rs. 10,000. Actual expenses amounted to Rs. 12,500.
Wye Ltd. Valued Land and building at Rs. 5,50,000, Plant & Machinery at
Rs. 6,50,000 and Patents at Rs. 20,000.
Pass Journal entries to close the books of the Vendor Company?
60
Solution:
Purchase Consideration:
Particulars
From
Rs.
(i) Preference share :

Rs. 10 per share
Cash
40,000
9% Preference share in Wye Ltd.
Preference shares
4,00,000
Cash
1,60,000
Equity shares
11,20,000
4,40,000
(ii) Equity shares :

Rs. 20 per share
8,000 equity shares in Wye Ltd. @ Rs.
140
Purchase Consideration
12,80,000
17,20,000
61
Solution: (Cont)
Steps to close the books of Transferor / Vendor Company
STEP 1: Open Realization account and transfer all assets at book value
Exception: If cash is not taken over by the purchasing Company, it should not be
transferred.
Note: Profit and Loss Account (Dr.) and expenses not written off are not assets
and should not be transferred to the Realization Account
Particulars
Realization Account
Dr. (Rs.)
Dr.
Cr. (Rs.)
15,80,000
To Goodwill
Cr.
2,00,000
To Land and Building
Cr.
4,00,000
To Plant & Machinery
Cr.
6,00,000
To Patents
Cr.
50,000
To Stock
Cr.
1,50,000
To Book debts
Cr.
1,80,000
(Transfer of assets to Realization Account on sale of business to Wye Ltd.)
62
Solution: (Cont)
STEP 2: Transfer Liabilities and provisions to the Realization A/C
Transfer liabilities which the purchasing company is taking over
Provisions which represent liability expected to arise in future should be
transferred
Portion of reserves which is not required, should be treated as profit.
Particulars
Dr. (Rs.)
6% Debentures in Wye Ltd.
Dr.
2,00,000
Workmens Compensation Reserve
Dr.
5,000
Trade Creditors
Dr.
1,20,000
To Realization A/C
Cr.
Cr. (Rs.)
3,25,000
(Transfer of liabilities taken over by Wye Ltd. To Realization A/C)
For liabilities not taken over by the purchasing company, the profit or loss on
discharge of such liabilities shall be transferred to the Realization Account
63
Solution: (Cont)
STEP 3: Debit purchasing Company and the Realization Account with the
Purchase consideration:
Particulars
Wye Ltd. Account
To Realization Account
Dr. (Rs.)
Dr.
Cr. (Rs.)
17,20,000
Cr.
17,20,000
(Transfer of liabilities taken over by Wye Ltd. To Realization A/C)
STEP 4: On receipt of the purchase consideration debit what is received

(cash, debentures, shares etc.) and credit the purchasing company. Thus:
Particulars
Dr. (Rs.)
Cash Account
Dr.
2,00,000
9% Preference shares in Wye Ltd.
Dr.
4,00,000
Equity shares in Wye Ltd.
Dr.
11,20,000
To Wye Ltd.
Cr.
Cr. (Rs.)
17,20,000
( Receipt of purchase consideration from the purchasing company)

64
Solution: (Cont)
STEP 5: Expenses of liquidation have to be dealt with according to the
circumstances of each case:
Vendor bears the

expense
Debit Realization A/C

Credit Cash A/C
Purchasing Co.
bears the expense
Ignore in the books of

the vendor Company
Where expenses are first

paid by the vendor company
and later reimbursed by the
purchasing company
(a) When expenses paid by vendor: Debit Purchasing company and credit Cash Account
(b) On the expenses being reimbursed: Debit Cash Account and credit purchasing
company.
65
Solution: (Cont)
STEP 5: Expenses of liquidation
In our Illustration, Wye Ltd. Has to pay maximum of Rs. 10,000 only whereas,
the amount spent is Rs. 12,500.
Hence, Rs. 2,500 is borne by Z Ltd .
Particulars
Dr. (Rs.)
Cr. (Rs.)
JOURNAL ENTRY 1:
Wye Ltd. Account
Dr.
10,000
Realization Account
Dr.
2,500
To Cash Account
Cr.
12,500
( Liquidation expenses out of which Rs. 10,000 is payable by Wye Ltd.)
Particulars
Dr. (Rs.)
Cr. (Rs.)
JOURNAL ENTRY 2:
Cash Account
To Wye Ltd.
(Amount reimbursed by Wye Ltd. For expense)
Dr.
Cr.
10,000
10,000
66
Solution: (Cont)
STEP 6: Liabilities not assumed by the purchasing company, have to be paid
off
Particulars
Dr. (Rs.)
Cr. (Rs.)
JOURNAL ENTRY 1:
Interest Outstanding
Dr.
To Debenture holders Account
12,000
Cr.
12,000
(Amount due to debenture holders for Debentures Interest)
Particulars
Dr. (Rs.)
Cr. (Rs.)
JOURNAL ENTRY 2:
Debenture holders
To Cash Account
Dr.
Cr.
12,000
12,000
(Debenture holders paid cash Rs. 12,000 for outstanding amount )
67
Solution: (Cont)
STEP 7: Credit Preference shareholders with the amount payable to them..
Debit Preference share capital with the amount shown in the books
Transfer the difference between the two, if any, to the Realization Account
Particulars
Dr. (Rs.)
6% Preference share Capital A/c
Dr.
4,00,000
Realization A/c
Dr.
40,000
To Preference shareholders A/c
Cr.
Cr. (Rs.)
4,40,000
The amount due to preference shareholders for capital and the extra amount payable under the scheme of absorption
STEP 8: Pay off preference share holders:

Particulars
Preference shareholders A/c
Dr. (Rs.)
Dr.
Cr. (Rs.)
4,40,000
To Cash
Cr.
40,000
To 9% Preference shares in Wye Ltd.
Cr.
4,00,000
The amount due to preference shareholders for capital and the extra amount payable under the scheme of absorption
68
Solution: (Cont)
STEP 9: Amount receivable by Equity share holders
Transfer equity share capital and account representing profit and loss (including
balance in the Realization account) to Equity shareholders Account..
This will determine the amount receivable by the equity shareholders of Z Ltd.
Particulars
Dr. (Rs.)
Equity share Capital A/c
Dr.
8,00,000
Capital Reserve A/c
Dr.
1,00,000
Profit & Loss A/c
Dr.
50,000
Workmens Compensation Reserve A/c
Dr.
3,000
Realization A/c
Dr.
4,22,500 **
Cr. (Rs.)
To Equity shareholders of Z Ltd. A/c
Cr.
13,35,500
To Underwriting commission A/c
Cr.
40,000
Various accounts representing capital and profit transferred to equity shareholders account
69
Solution: (Cont)
Realization Account will appear as follows:
Dr.
Amount
To Sundry Assets (Step 1)
15,80,000
To Cash (excess expense of

liquidation) (Step 5)
2,500
To Preference shareholders (Step 7)

To Equity shareholders A/c
PROFIT TRANSFERRED (Bal Fig.)
Cr.
Amount
By Sundry liabilities (Step 2)
3,25,000
By Wye Ltd. (Step 3)
17,20,000
40,000
4,22,500 **
20,45,000
20,45,000
70
Solution: (Cont)
Equity Shareholder's Account will appear as follows:
Dr.
Amount
To Equity shares in Wye Ltd.
11,20,000
To Cash
2,15,500
13,35,500
Cr.
By Equity Shareholders of Z
ltd. (Step 9)
Amount
13,35,500
13,35,500
71
Solution: (Cont)
Cash Account will appear as follows:
Dr.
Amount
Cr.
To Equity Shareholders account
2,15,500
By Opening Balance
70,000
To Preference Shareholders account

(Step 8)
40,000
2,00,000
To Realization A/c (Step 5)
2,500
10,000
To Liquidation expenses (Step 5)
10,000
To Debentureholders (Step 6)
12,000
2,80,000
Amount
2,80,000
72
Agenda
Introduction
Definitions
Purchase Method
Disclosures
73
Disclosures
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
74
Disclosures (Cont)
Pooling of Interests method
Description and number of shares issued
The amount of any difference between the consideration and value of net
assets acquired
Purchase method
Description of the consideration paid or payable
Any difference between the consideration and value of net assets acquired
75
Disclosures (Cont)
Amalgamation after the Balance Sheet Date
When an amalgamation is effected after the balance sheet date but before the
issuance of the financial statements of either party to the amalgamation,
disclosure should be made in accordance with AS 4, Contingencies and
Events Occurring After the Balance Sheet Date
But the amalgamation should not be incorporated in the financial statements.
In certain circumstances, the amalgamation may also provide additional
information affecting the financial statements themselves.
for instance, by allowing the going concern assumption to be maintained.
76
Thank You
77

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Accounting Standard (AS) 14

Accounting for Amalgamations

IPCC Paper 1 Accounting ,Chapter 1

Absorption or blending of one by the other

Existing companies A Ltd. and B

An existing company A ltd takes

A new company X ltd is formed to

Economies of large Scale

To acquire cash resources

Amalgamation means an amalgamation pursuant to the provisions of the

The company which is amalgamated into another company.

The company into which a transferor company is amalgamated

The portion of earnings, receipts or other surplus of an enterprise (whether

Amalgamation for Accounting

Conditions: Amalgamation in the Nature of

Not less than 90%

All assets and liabilities of the transferor company

Shareholders holding not less than 90% of the face

Conditions: Amalgamation in the Nature of

Issue of equity shares in

The consideration for the amalgamation

The business of the transferor company is

Conditions: Amalgamation in the Nature of

No adjustments is intended to be made to the

Amalgamation in the Nature of Purchase

An amalgamation should be considered to be an amalgamation in the

In case of issue of securities, fair value is the value fixed by

In all other cases,

Consideration < Net Asset

Methods of accounting for Amalgamations

Amalgamation in the NATURE

Pooling of interests method

Accounting under Pooling of interests

Balance of the Profit

Aggregated with the

Reserves under Pooling of interests method :

Share Capital under Pooling of interests

Amount recorded as share

The amount of share capital of

Conflicting Accounting Policies under Pooling

Accounting Standard (AS) 5,

Example: Amalgamation in the Nature of merger

(in 000 Rs.) (in 000 Rs.)

(in 000 Rs.) (in 000 Rs.)

Land and Building

Plant and Machinery

Furniture and Fittings

Export Profit Reserve

Profit and Loss Account

Cash & Bank

Other Current Liabilities

Example: Amalgamation in the Nature of merger

Notes to Accounts : Share Capital (1)

Equity Share Capital

Preference Share Capital

18,700, 15% Preference shares of Rs. 100 each

TOTAL SHARE CAPITAL in the Books of X Ltd.

Notes to Accounts: Reserves and Surplus (2)

General Reserve of X Ltd.

Add: General Reserve of Y Ltd.

Less: Adjustment for Amalgamation ** (See working below)

Export Profit Reserve of X Ltd.

Add: Export Profit Reserve of Y Ltd.