Module 1: Amalgamation of Joint Stock Companies
(As per NEP 2020 – SRTMU, Nanded)
1.1 Introduction to Amalgamation
Meaning of Amalgamation
Amalgamation means the combination of two or more existing companies into one company, either by:
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Formation of a new company, or
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Merger of one company into another existing company.
In amalgamation, the assets and liabilities of the transferor company are taken over by the transferee company.
(मराठी टीप: दोन किंवा अधिक कंपन्या एकत्र येऊन एक कंपनी तयार होणे म्हणजे Amalgamation.)
Definition
“Amalgamation is an arrangement whereby the assets and liabilities of two or more companies are vested in another company.”
Characteristics of Amalgamation
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Two or more companies are involved
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Transferor company loses its identity
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Assets and liabilities are taken over
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Shareholders of transferor company become shareholders of transferee company
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Consideration is paid by transferee company
Objectives / Causes of Amalgamation
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Expansion of business
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Elimination of competition
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Economies of scale
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Better utilisation of resources
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Financial stability
(Exam Tip: “Objectives” is a short-note favourite question.)
1.2 Purchase Consideration
Meaning
Purchase Consideration means the amount paid by the purchasing company to the vendor company for taking over its business.
Methods of Purchase Consideration
As per syllabus, ONLY these two methods are required:
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Net Payment Method
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Net Asset Method
1️⃣ Net Payment Method
Under this method, actual payment made by purchasing company is calculated.
Consideration may include:
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Equity Shares
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Preference Shares
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Debentures
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Cash
Formula:
(मराठी टीप: जेवढं खरं देण्यात येतं, तेवढी Purchase Consideration.)
2️⃣ Net Asset Method
Under this method, purchase consideration is calculated by net assets taken over.
Formula:
Important Notes:
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Fictitious assets are ignored
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Assets and liabilities are taken at agreed values
(Exam Tip: Always show Working Notes clearly.)
1.3 Accounting Entries
A) In the Books of Vendor Company
1. Transfer of Assets
2. Transfer of Liabilities
3. Purchase Consideration Receivable
4. Receipt of Purchase Consideration
5. Profit or Loss on Realisation
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Profit:
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Loss:
(मराठी टीप: Realisation Account हा Vendor Company साठी सर्वात महत्त्वाचा आहे.)
B) In the Books of Purchasing Company
1. Purchase of Business
2. Assets Taken Over
3. Liabilities Taken Over
4. Payment of Purchase Consideration
1.4 Balance Sheet After Amalgamation
IMPORTANT INSTRUCTION (As per Teacher’s Note)
👉 Balance Sheet must be prepared in:
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Old Format – Companies Act, 1956
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Then converted into New Format – Companies Act, 2013
A) Balance Sheet – OLD FORMAT (Companies Act, 1956)
Vertical Form
Balance Sheet of XYZ Ltd.
(After Amalgamation)
Liabilities
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Share Capital
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Reserves & Surplus
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Secured Loans
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Unsecured Loans
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Current Liabilities & Provisions
Assets
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Fixed Assets
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Investments
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Current Assets
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Miscellaneous Expenditure
(मराठी टीप: परीक्षेत जुना format अजूनही विचारात घेतला जातो.)
B) Balance Sheet – NEW FORMAT (Companies Act, 2013)
Schedule III Format
Balance Sheet of XYZ Ltd.
(As per Companies Act, 2013)
Equity and Liabilities
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Shareholders’ Funds
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Non-current Liabilities
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Current Liabilities
Assets
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Non-current Assets
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Current Assets
(Exam Tip: Headings exactly Schedule III प्रमाणे लिहा.)
Solved Illustration (Model Type)
Problem (Outline)
A Ltd. amalgamated with B Ltd.
Assets and liabilities were taken over at agreed values.
Purchase consideration was paid by issue of equity shares.
👉 Required:
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Calculate Purchase Consideration
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Pass journal entries in both companies
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Prepare Balance Sheet in:
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Old format (1956 Act)
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New format (2013 Act)
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(Full numerical solution will be provided in PDF-2: Solved Problems)
Exam-Oriented Points (Very Important)
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Purchase Consideration method must be clearly mentioned
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Journal entries should be properly narrated
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Balance Sheet format must be clearly labelled
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Working Notes carry marks
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Neat presentation = more marks
(मराठी टीप: format चुकला तर marks कमी होतात.)