Understanding Corporate Amalgamation in Accounting
Corporate amalgamation refers to the combination of two or more companies into a new entity, involving either merger or purchase methods. This article explores the concept, examples, types, and key terms related to corporate amalgamation in accounting. Learn more about this important topic in the field of corporate accounting.
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Class:- M.com 2ndSemester Subject:- Corporate Accounting Topic:- Amalgamation By:-Prof.Ruchika Batra (Assistant Professor) Department Of Commerce & Management I.B.(P.G)College,Panipat Affiliated To Kurukshetra University,Kurukshetra
Amalgamation Amalgamation is defined as the combination of one or more companies into a new entity. It includes:- Two or more companies join to form a new company Absorption or blending of one by the other Generally, Amalgamation is done between two or more companies engaged in the same line of activity or has some synergy in their operations. Again the companies may also combine for diversification of activities or for expansion of services
Example j Company A is an amalgamating Company Company B is also an amalgamating Company This amalgamation results in the formation of a new amalgamating Company AB
Other Examples Two good examples of Amalgamation are as follows:- Maruti Motors operating in India and Suzuki based in Japan amalgamated to form a new company called Maruti Suzuki (India) Limited. Tata Sons operating in India and AIA Group based in Hong Kong amalgamated to form a new company called TATA AIG Life Insurance.
Types Of Amalgamation Amalgamation in the nature of merger:- In this type of amalgamation, not only is the pooling of assets and liabilities is done but also of the shareholders interests and the businesses of these companies. In other words, all assets and liabilities of the transferor company become that of the transfer company. In this case, the business of the transfer or company is intended to be carried on after the amalgamation. There are no adjustments intended to be made to the book values. The other conditions that need to be fulfilled include that the shareholders of the vendor company holding atleast 90% face value of equity shares become the shareholders of the vendee company.
Contd. Amalgamation in the nature of purchase:- This method is considered when the conditions for the amalgamation in the nature of merger are not satisfied. Through this method, one company is acquired by another, and thereby the shareholders of the company which is acquired normally do not continue to have proportionate share in the equity of the combined company or the business of the company which is acquired is generally not intended to be continued. If the purchase consideration exceeds the net assets value then the excess amount is recorded as the goodwill, while if it is less than the net assets value it is recorded as the capital reserves.
Accounting Of Amalgamation Pooling of Interests Method:- Through this accounting method, the assets, liabilities and reserves of the transfer or company are recorded by the transferee company at their existing carrying amounts.
Contd. Purchase Method:- In this method, the transfer company accounts for the amalgamation either by incorporating the assets and liabilities at their existing carrying amounts or by allocating the consideration to individual assets and liabilities of the transfer or company on the basis of their fair values at the date of amalgamation.
Advantages Of Amalgamation Amount of capital can be increased by combining business. Establishing and management cost can be reduced. Benefits of large scale production can be secured. Research and development facilities are increased. Monopoly in the market can be achieved. Avoiding competitions. Increasing efficiency Expansion
Limitations Amalgamation may lead to elimination of healthy competition Reduction of employees may take place There could be additional debt to pay Business combination could lead to monopoly in the market, which is not always positive The goodwill and identity of the old company is lost
Conclusion Amalgamation is one of the tools that can help companies avoid competition among them and add to the market offerings. It is for the mutual advantage of the acquirer and acquired companies. It serves as an apt method of corporate restructuring to bring about a change for the better and make competitive. business environment
