Amalgamation Notes

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AMALGAMATION
Amalgamation in the nature of merger is an amalgamation which satisfies all the following
conditions:
(i) All the assets and liabilities of the transferor company become, after amalgamation, the
assets and liabilities of the transferee company.
(ii) Shareholders holding not less than 90% of the face value of the equity shares of the
transferor company (other than the equity shares already held therein, immediately before the
amalgamation, by the transferee company or its subsidiaries or their nominees) become equity
shareholders of the transferee company by virtue of the amalgamation.
(iii) The consideration for the amalgamation receivable by those equity shareholders of the
transferor company who agree to become equity shareholders of the transferee company is
discharged by the transferee company wholly by the issue of equity shares in the transferee
company, except that cash may be paid in respect of any fractional shares.
(iv) The business of the transferor company is intended to be carried on, after the
amalgamation, by the transferee company.
(v) No adjustment 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.
If any one or more of the above conditions are not satisfied in an amalgamation, such
amalgamation is called amalgamation in the nature of purchase
Purchase Consideration
AS 14 defines the term purchase consideration as the “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.
It is notable that purchase consideration does not include the sum which the transferee
company will directly pay to the creditors of the transferor company.
COMPUTATION OF PURCHASE CONSIDERATION
i) Lump Sum Method: The amount to be paid by the transferee company as consideration
may be stated in the problem as a lump sum. In such a case, no calculation is required.
(ii) Net Assets Method: The amount of consideration or the amount of net assets is
ascertained under this method in the following manner:
Assets taken over (at their revalued figures, if any, otherwise at their book figures).
Less: Liabilities taken over (at their agreed values, if any, otherwise at their book figures).
While determining the amount of consideration under this method care should be taken of the
following:
1. The term “Assets” will always include cash in hand and cash at bank, unless
otherwise stated but shall not include any fictitious asset like preliminary
expenses, underwriting commission, discount on issue of shares or debentures,
profit and loss account (debit balance), etc.
2. If any particular asset is not taken over by the transferee company, the same
should not be included while computing purchase consideration.
To Be Continued.....
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