NITIN GOEL
❏ CHARTERED ACCOUNTANT
❏ All India Rankholder
(CPT-9, Inter-7 , Final-9)
❏ Gold Medalist
❏ Educator: CA Inter Accounts
& Advanced Accounts
❏ 3 Years Experience with ITC Ltd.
8 years Teaching Experience
Use Code: CANITIN to get 10% Discount
, AMALGAMATION
Introduction
RECONSTRUCTION
Internal External
Reconstruction Reconstruction
External Amalgamation Absorption
Reconstruction X Ltd. Y Ltd. Existing X Ltd. takes
(old) (old) over existing Y Ltd.
X Ltd. → Y Ltd.
old new
Z Ltd. (New)
Basis Amalgamation Absorption External
Reconstruction
Meaning 2 or more companies are An existing company takes A newly formed
wound up and a new over the business of one or company takes over the
company is formed to take more existing companies business of an existing
over their business company
Minimum no. Atleast 3 Atleast 2 Only 2
of Co.’s
No. of new Only 1 No new resultant company Only 1
resultant co. is formed
Purchase Consideration (AS -14)
Purchase consideration is the aggregate of shares and other securities issued (i.e. any long term security
from the left side of the balance sheet including equity shares, preference shares, debentures etc.) and
payments made in the form of cash and other assets (anything from the asset side) by the transferee
company to the shareholders of transferor company.
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
, METHODS OF COMPUTATION OF PURCHASE CONSIDERATION:
Question 1
Following is the balance sheet of BX Ltd. as on 31st March, 2020
A. Equity and Liabilities
1. Shareholders’ Fund
(a) Share Capital
12% preference shares of ₹ 100 each fully paid-up 15,00,000
Equity shares of ₹ 10 each fully called-up and paid-up 35,00,000 50,00,000
(b)Reserves & Surplus
General reserve 11,00,000
Securities premium 9,00,000 20,00,000
2. Non-Current Liabilities
13% Debentures 25,00,000
3. Current Liabilities 15,00,000
Total 1,10,00,000
B. Assets
1. Non-Current assets
(a) Property, Plant & Equipment 55,00,000
(b) Investments 25,00,000 80,00,000
2. Current Assets 30,00,000
Total 1,10,00,000
PQR Ltd. agreed to takeover the assets and liabilities of BX Ltd. on the following terms and conditions :
(A) Discharge 13% debentures at a premium of 10% by issuing 14% debentures of PQR Ltd
(B) Revalue — Property, Plant & Equipment at 10% above the book value; investments at par value;
current assets at a discount of 10%; and current liabilities at book value.
You are required to calculate the purchase consideration as per the net assets method.
Question 2 IPCC May 2016 (4 Marks) / RTP May 2021
Astha Ltd. is absorbed by Nistha Ltd.; the consideration being the takeover of liabilities, the payment of
cost of absorption not exceeding ₹ 10,000 (actual cost ₹ 9,000); the payment of the 9% debentures of ₹
50,000 at a premium of 20% through 8% debentures issued at a premium of 25% of face value and the
payment of ₹15 per share in cash and allotment of three 11% preference shares of ₹ 10 each and four
equity shares of ₹10 each at a premium of 20% fully paid for every five shares in Astha Ltd. The number
of shares of the vendor company are 1,50,000 of ₹ 10 each fully paid. Calculate purchase consideration
as per AS 14.
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
, Types of Amalgamation
Amalgamation in the Nature of Merger (Pooling of interest method)
As per AS-14 the following 5 conditions are to be fulfilled: -
1. All assets and liabilities are transferred.
2. Assets and liabilities are transferred at same value i.e. book value.
Exception - ‘Purchasing co.’ can change value of assets or liabilities to follow same accounting policy.
3. Purchase consideration is discharged by issue of equity shares only to the equity shareholders of
transferor company.
Exception - ‘Purchasing company’ can pay cash for fractional part of the shares.
4. Same business is intended to be carried on by the purchasing company
5. Shareholders holding atleast 90% of face value of shares in the ‘vendor company’ becomes the
shareholders in the purchasing company.
Amalgamation in the Nature of Purchase (Purchase method)
If any of the 5 conditions discussed above (in merger) is violated, then it is called amalgamation in the
nature of purchase.
Books of Purchasing/Transferee Company
1. Record the acquisition of business from Vendor Company
Business Purchase A/c Dr. (with the Purchase Consideration)
To Liquidator of Vendor Company A/c
2. Taking over Assets & Liabilities of Vendor Company
A. Nature of Purchase
Assets A/c Dr. (Individually at taken over value)
Goodwill A/c Dr. (Difference)
To Liabilities A/c (Individually at taken over value)
To Business Purchase A/c (with the Purchase Consideration)
To Capital Reserve A/c (Difference)
B. Nature of Merger
Assets A/c Dr. (Individually at book value)
To Liabilities A/c (Individually at book value)
To Reserves A/c (All at book value & adjustment to be made in it)
To Business Purchase A/c (with the Purchase Consideration)
3. Making Payment to Vendor Company
Liquidator of Vendor Company A/c Dr.
Discount on issue of debentures A/c Dr.
To Equity share capital
To Preference share capital
To Debentures
To Securities Premium
To Bank A/c
(Only for Equity Shareholders and Preference shareholders)
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
❏ CHARTERED ACCOUNTANT
❏ All India Rankholder
(CPT-9, Inter-7 , Final-9)
❏ Gold Medalist
❏ Educator: CA Inter Accounts
& Advanced Accounts
❏ 3 Years Experience with ITC Ltd.
8 years Teaching Experience
Use Code: CANITIN to get 10% Discount
, AMALGAMATION
Introduction
RECONSTRUCTION
Internal External
Reconstruction Reconstruction
External Amalgamation Absorption
Reconstruction X Ltd. Y Ltd. Existing X Ltd. takes
(old) (old) over existing Y Ltd.
X Ltd. → Y Ltd.
old new
Z Ltd. (New)
Basis Amalgamation Absorption External
Reconstruction
Meaning 2 or more companies are An existing company takes A newly formed
wound up and a new over the business of one or company takes over the
company is formed to take more existing companies business of an existing
over their business company
Minimum no. Atleast 3 Atleast 2 Only 2
of Co.’s
No. of new Only 1 No new resultant company Only 1
resultant co. is formed
Purchase Consideration (AS -14)
Purchase consideration is the aggregate of shares and other securities issued (i.e. any long term security
from the left side of the balance sheet including equity shares, preference shares, debentures etc.) and
payments made in the form of cash and other assets (anything from the asset side) by the transferee
company to the shareholders of transferor company.
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
, METHODS OF COMPUTATION OF PURCHASE CONSIDERATION:
Question 1
Following is the balance sheet of BX Ltd. as on 31st March, 2020
A. Equity and Liabilities
1. Shareholders’ Fund
(a) Share Capital
12% preference shares of ₹ 100 each fully paid-up 15,00,000
Equity shares of ₹ 10 each fully called-up and paid-up 35,00,000 50,00,000
(b)Reserves & Surplus
General reserve 11,00,000
Securities premium 9,00,000 20,00,000
2. Non-Current Liabilities
13% Debentures 25,00,000
3. Current Liabilities 15,00,000
Total 1,10,00,000
B. Assets
1. Non-Current assets
(a) Property, Plant & Equipment 55,00,000
(b) Investments 25,00,000 80,00,000
2. Current Assets 30,00,000
Total 1,10,00,000
PQR Ltd. agreed to takeover the assets and liabilities of BX Ltd. on the following terms and conditions :
(A) Discharge 13% debentures at a premium of 10% by issuing 14% debentures of PQR Ltd
(B) Revalue — Property, Plant & Equipment at 10% above the book value; investments at par value;
current assets at a discount of 10%; and current liabilities at book value.
You are required to calculate the purchase consideration as per the net assets method.
Question 2 IPCC May 2016 (4 Marks) / RTP May 2021
Astha Ltd. is absorbed by Nistha Ltd.; the consideration being the takeover of liabilities, the payment of
cost of absorption not exceeding ₹ 10,000 (actual cost ₹ 9,000); the payment of the 9% debentures of ₹
50,000 at a premium of 20% through 8% debentures issued at a premium of 25% of face value and the
payment of ₹15 per share in cash and allotment of three 11% preference shares of ₹ 10 each and four
equity shares of ₹10 each at a premium of 20% fully paid for every five shares in Astha Ltd. The number
of shares of the vendor company are 1,50,000 of ₹ 10 each fully paid. Calculate purchase consideration
as per AS 14.
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
, Types of Amalgamation
Amalgamation in the Nature of Merger (Pooling of interest method)
As per AS-14 the following 5 conditions are to be fulfilled: -
1. All assets and liabilities are transferred.
2. Assets and liabilities are transferred at same value i.e. book value.
Exception - ‘Purchasing co.’ can change value of assets or liabilities to follow same accounting policy.
3. Purchase consideration is discharged by issue of equity shares only to the equity shareholders of
transferor company.
Exception - ‘Purchasing company’ can pay cash for fractional part of the shares.
4. Same business is intended to be carried on by the purchasing company
5. Shareholders holding atleast 90% of face value of shares in the ‘vendor company’ becomes the
shareholders in the purchasing company.
Amalgamation in the Nature of Purchase (Purchase method)
If any of the 5 conditions discussed above (in merger) is violated, then it is called amalgamation in the
nature of purchase.
Books of Purchasing/Transferee Company
1. Record the acquisition of business from Vendor Company
Business Purchase A/c Dr. (with the Purchase Consideration)
To Liquidator of Vendor Company A/c
2. Taking over Assets & Liabilities of Vendor Company
A. Nature of Purchase
Assets A/c Dr. (Individually at taken over value)
Goodwill A/c Dr. (Difference)
To Liabilities A/c (Individually at taken over value)
To Business Purchase A/c (with the Purchase Consideration)
To Capital Reserve A/c (Difference)
B. Nature of Merger
Assets A/c Dr. (Individually at book value)
To Liabilities A/c (Individually at book value)
To Reserves A/c (All at book value & adjustment to be made in it)
To Business Purchase A/c (with the Purchase Consideration)
3. Making Payment to Vendor Company
Liquidator of Vendor Company A/c Dr.
Discount on issue of debentures A/c Dr.
To Equity share capital
To Preference share capital
To Debentures
To Securities Premium
To Bank A/c
(Only for Equity Shareholders and Preference shareholders)
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
