Amalgamation may take place by merging of a smaller entity into a bigger entity or two or more business entities may merge together to form a new business entity. Oct 28, 2016 the process of external reconstruction is governed by the process of amalgamation in the nature of merger under the companies act, 20. Pdf amalgamation new method to merge and takeover companies. When two or more companies carrying on similar business decide to combine. Salary paid company includes allowances and deductions.
A merger is where two or more business entities combine to create a new entity or company. May 17, 2020 introduction to amalgamation amalgamation of companies, advanced corporate accounting b com notes edurev is made by best teachers of b com. Difference between amalgamation and acquisition compare. Accounting for amalgamation, absorption and external reconstruction 1. Jul 26, 2018 the primary difference between amalgamation and absorption of companies is that in amalgamation, the two companies are liquidated to form a new company, but in absorption only the merged company goes into liquidation, but there is no formation of a new company. A merger is a combination of two or more firms in which only one firm would survive and the other would cease to exist, its assets liabilities being taken over by the surviving firm. The income tax act, 1961of india uses the term amalgamation for merger. Therefore, the term amalgamation contemplates two kinds of activities. When two or more companies carrying on similar business decide to combine, a new company is formed, it is known as a amalgamation b absorption c internal reconstruction d external reconstruction 2.
This scheme is known as single window clearance scheme. By reading this article, you will be able to understand the difference between merger and. In the process of external reconstruction, a new company is formed to take over the liquidated company and the newly formed company gets a fresh share capital without any reduction in the share capital. Understanding inter company holdings and numerical on the intercompany holdings.
Reconstruction and amalgamation legal services india. Section 232 of companies act, 20 merger and amalgamation. Balance sheet as on 31st march 2014 liabilities anita ltd. In case of a amalgamation of two companies, stocks of both companies are dissolved and new stocks of the new business entity are issued to the shareholders. Accounting for amalgamation, absorption and external. Concept and types of reconstruction when a company is suffering loss for several past years and suffering from financial difficulties, it may go for reconstruction.
Merger, amalgamation and reconstruction concept of merger. Amalgamation amalgamation is an arrangement or reconstruction. If at any time the executives employment is terminated in connection with any reconstruction or amalgamation of the company or any of the group companies whether by winding up or otherwise and the executive receives an offer on terms which are similar in all material respects to the terms of this agreement from a company involved in or resulting from such. Amalgamation is defined as the combination of one or more companies into a new entity. The following information has been extracted from the balance sheets of p ltd. Amalgamation absorption and reconstruction of companies module 5. Amalgamation, absorption and reconstruction of companies determining purchase consideration. There are differenent types of rules and provison are there. Is formed to take over the business of an existing co. Where an undertaking is being carried on by a company and is in substance transferred, not to an outsider, but to another company consisting substantially of the same shareholders with a view to its being continued by the transferee company, there is a reconstruction. Problems on amalgamation, absorption and external reconstruction amalgamation problem no.
Consolidation vs amalgamation whats the difference. In this article we will discuss about the top five problems on amalgamation and external reconstruction with their relevant solutions. Amalgamation is voluntary in nature, whereas absorption can be discretionary or hostile. Merger alludes to the combination of two or more firms, to form a new company, either by way of amalgamation or absorption. The reconstruction arrangement made by a company, to come out of its financial difficulties, may be external or internal. These are two business strategies adopted by the companies to expand itself and take a competitive position in the market. Meaning and features of absorption accountingmanagement. Aug, 2015 accounting for amalgamation partii amalgamation means the liquidation of one or more companies and transfer of business of liquidated entities to another entity. The accounting record of absorption is similar to that of amalgamation. On the other hand, absorption is the process in which the one dominant company takes control over the weaker company. External reconstruction is when one company changes its external structure. Amalgamation and external reconstruction multiple choice. There are no book in india i have seen where difference among the amalgamation,absorption,external reconstruction,marger has been cleared. Difference between merger and acquisition with example and.
Amalgamation and external reconstruction multiple choice questions. Both the transferor and the transferee company shall make an application in the form of petition to the tribunal under section 230232 of the companies act, 20 for the. Acquisition or otherwise known as takeover is a business strategy in which one company takes the control of another company. For reconstruction, the owner retains at least 90% of the assets directly or indirectly after the transfer. There may be amalgamation either transfer of two or more undertakings to an existing company or new company. Today we are providing the complete details of as 14 accounting for amalgamation i. Company ac, creditors ac, in the books of nath ltd. Mar 07, 2014 accounting for amalgamation, absorption and external reconstruction 1. Amalgamation and external reconstruction 8 accounting.
Advanced managerial accounts 1 multiple choice questions chapter. Term is used when one existing company goes into liquidation and a new co. Amalgamation and external reconstruction 8 accounting problems. This is an enabling provision to allow the companies to decide and agree upon an appointed date from which the scheme shall come into force. In reconstruction, there is a transfer of a companys business to a new company. This document is highly rated by b com students and has been viewed 4684 times. The nature of business of both companies is similar. Company merger acquisition amalgamation and restructuring. In an amalgamation, two or more companies are combined into one by merger or by one taking over the other. Thus, merger or amalgamation may take any of the two forms. The process of external reconstruction is governed by the process of amalgamation in the nature of merger under the companies act, 20. However it deals with schemes of merger acquisition which are stipulated under section 391 to 394. Difference between merger and amalgamation difference. A new company x is formed to take over the business of an existing company y which is wound up.
The above two companies amalgamated on the date of the balance and a new company. Merger and amalgamation of companies effective from 15th december, 20161 where an application is made to the tribunal under section 230 for the sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the tribunal a that the compromise or arrangement has been proposed for the. The following are the summarised balance sheets of v ltd and p ltd as at 31st march, 2012. Concept and types of reconstruction accountingmanagement. Amalgamation is a legal process by which two or more companies are joined together to form a new entity or one or more companies are to be absorbed or blended with another and as a consequence the amalgamating company loses its existence and its shareholders become. Apr 23, 2012 in absorption, one or more companies are liquidated. Meaning and difference between amalgamation absorption external reconstruction types of amalgamation. When two companies join and liquidate to give birth to a new company is known as amalgamation. External reconstruction refers to closingliquidating the company and starting again a new or a fresh. For most people, mergers and amalgamations are one and the same.
If this agreement is terminated because of the liquidation of the company for the purpose of amalgamation or reconstruction or if a third party agrees to acquire the whole or substantially the whole of the undertaking and assets of the company and the executive is offered employment with such amalgamated or reconstructed company or third party on terms which. Amalgamation, as the name itself suggest, is a form of external reconstruction, in which there is a combination of two or more than two companies, either by merger or by takeover. It is important to know about those mergers and acquisitions that have changed the scenario of corporate world. Amalgamation in the nature of merger is an amalgamation which satisfies all the following conditions. An absorption is a combination of two or more companies into an existing. Absorption is a process whereby one company occupies control over the other company. A merger involves the mutual decision of two companies to combine and become one entity. What are the differences between amalgamation, absorption. A merger occurs when two separate entities combine forces to create a new, joint organization. The following are the differences between amalgamation and absorption. Merger, amalgamation and reconstruction concept of. Internal reconstruction which is carried out without liquidating the company and forming a new one, there may be external reconstruction wherever an undertaking is being carried on by a company and is in substance transferred, not to an outsider, but to another company consisting substantially of the same shareholders with a view to its being continued by the transferee company, there is.
Merger, amalgamation, acquisition, take over ppt download. Numerical on accounting treatment of amalgamation, absorption, internal and external reconstruction. Noun wikipedia amalgamation the process of amalgamating. Dec 29, 2016 it is important to know about those mergers and acquisitions that have changed the scenario of corporate world. Amalgamation module vi amalgamation absorption and. In the previous articles, we have given as 6 depreciation and as 26 intangible assets. Related topics meaning and features of amalgamation. There is a genuine mpooli9ng of assets and liabilities ofthe transferor companies as well as the share holders interest. In the part 1 click here for part i accounting for amalgamation we learnt about nature of amalgamation and method of accounting, now we are going to learn journal entries in the event of amalgamation. The combined business, through structural and operation. Types of amalgamation amalgamation in the nature of merger amalgamation in the nature of purchase. Aug 15, 2015 amalgamation means the liquidation of one or more companies and transfer of business of liquidated entities to another entity. An amalgamation is where one business entity acquires one or more business entities.
As such the shareholders of all the transferor companies conti9nue to have substantial or proportionate share in the equity or management of transferee company. Merger, acquisition, amalgamation and restructuring of company what does it mean when they say companies merged or company acquired or what does it mean when they say, there was an amalgamation. What is the difference between mergers, acquisitions. Dec 21, 2007 there are no book in india i have seen where difference among the amalgamation, absorption, external reconstruction,marger has been cleared.
The companies act, 1956 does not define the term merger or amalgamation. Problems on amalgamation and external reconstruction. Accounting standards14 calculation of purchase consideration under different methods,settlement of purchase consideration problems on amalgamation, absorption and external reconstruction. Allowances are many types i am giving you some examples. In this article we will discuss about the top eight accounting problems on amalgamation and external reconstruction with their relevant solutions. Amalgamation, as its name suggests, is nothing but two companies becoming one. It provides a composite code for facilitating mergers and amalgamations which obviates the need for making multiple applications under the act. Reconstruction and amalgamation the company wished to avoid being wound up and negotiated a scheme in which the existing shareholdings in the company would be transferred to a new company which would take over the companys undertaking and assets as well as its debts. As 14 accounting for amalgamation revised summary pdf. Reconstruction and amalgamation legal service india. Accounting for external reconstruction the accounting procedure in case of external reconstruction is the same as in case of amalgamation or absorption in the nature of purchase. For amalgamation, there will be no substantial change in the ownership of the respective companies except for the fusion into common ownership of what was previously in separate ownership.
It is calculated as a percentage of basic salary to moderate the impact of inflation on employees. It is commenced by the preparation of an amalgamation proposal setting out the terms of the amalgamation in detail and all critical information relating to it55. In the part 1 click here for part i accounting for amalgamation we learnt about nature of amalgamation and. The terms merger and amalgamation are used interchangeably as a form of business organization to seek external growth of business. Amalgamation, reconstruction, mergers, takeover of companies. In amalgamation, the identity of both the companies exist and survive. Difference between merger and acquisition with example. A merger happens when two or more companies who share similar operations or are engaged in the same line of business combine to.
Accounting for amalgamations the accounting issues pertaining to amalgamation as defined under the provision of the companies act1956 are dealt under accounting standard as 14 as evolved by the institute of charted accountant of india. They can join through an amalgamation, merger, or consolidation. Accounting for companiesii lpu distance education lpude. It is a cost of living adjustment allowance paid to employees in india. Jul 26, 2018 merger alludes to the combination of two or more firms, to form a new company, either by way of amalgamation or absorption. Satisfied for an amalgamation in the nature of merger. What are the differences between amalgamation, absorption and. Difference between amalgamation and merger with infographics. Reconstruction refers to certain arrangements made by financially unsound companies. External reconstruction takes place when an existing company goes into liquidation for the express. Section 232 6 of the act states that the scheme shall be deemed to be effective from the appointed date and not a date subsequent to the appointed date. In it a new company is formed to acquire the business of an existing company are transferred to the newly formed company.
Meaning of external reconstruction differences between. Sep 18, 2010 neither reconstruction nor amalgamation has a precise legal meaning. In absorption, one or more companies are liquidated. In a number o c absorption a tion existing comp wing does. It is the conversion of two companies and two balance sheets into one company and one combined balance sheet. A merger is a combination of two or more firms in which only one firm would survive and the other would cease to exist, its assets. Amalgamation absorption and reconstruction of companies.
External reconstruction is effected by liquidating the company. Jan 11, 2018 amalgamation is defined as the combination of one or more companies into a new entity. Features of absorption one or more companies are liquidated. Difference between amalgamation and absorption with. Reconstruction and amalgamation legal news law news. In other words, when a companys balance sheet shows huge accumulated losses, heavy fictitious and intangible assets or is in financial difficulties or is to over capitalized, and. However, one should remember that amalgamation as its name suggests, is nothing but two companies becoming one. In the process of absorption, no new company is formed and an existing company takeover absorbs other liquidated companies.
Introduction to amalgamation amalgamation of companies. However, from the standpoint of business as well as accounting, there. Neither reconstruction nor amalgamation has a precise legal meaning. Amalgamation, merger, and consolidation two or more registered charities can join together as one body in response to changing circumstances or changed objectives.
Apr 26, 2011 1 amalgamation in the nature of merger. We use your linkedin profile and activity data to personalize ads and to show you more relevant ads. Absorption of companies involves combination of companies, whereas external reconstruction does not involve any combination. Mar 11, 2017 merger, acquisition, amalgamation and restructuring of company what does it mean when they say companies merged or company acquired or what does it mean when they say, there was an amalgamation. Reconstruction of companies external reconstruction. Difference between merger and amalgamation categorized under business difference between merger and amalgamation. Generally, larger company purchase the business of smaller company. Explain the accounting treatment for acquisition of business. Amalgamation is the consolidation or combination of two or more companies known as the amalgamating companies usually the companies that operate in the same or similar line of business to form a completely new company whereas merger refers to the consolidation of two or more business entity to form one single joint entity with the new management structure and new business ownership where both.