There may be amalgamation either transfer of two or more undertakings to an existing company or new company. However, from the accounting point of view, the distinction between amalgamation and. Definition of company for the purpose ofsf sec 391 394 sec 390 company means any company liable to be wound up under this act. 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.
Amalgamation and external reconstruction multiple choice. Amalgamation is the joining of two or more companies to form a single new company. Amalgamation term amalgamation is used when two or more existing companies into liquidation and new co. 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 and external reconstruction multiple choice questions. Difference between internal and external reconstruction. Basic understanding about absorption, amalgamation and external reconstruction. Besides, companies court rules, 1959 lay down the procedure for carrying out amalgamations. Features of absorption one or more companies are liquidated. Reconstruction and amalgamation legal news law news. Know the accounting procedure for amalgamation of partnership firms. The above two companies amalgamated on the date of the balance and a new company. Differences between absorption and external reconstruction 1.
Meaning of external reconstruction differences between. Company liquidators final statement different methods of valuation of shares and goodwill. Corporate restructuring merger and amalgamation company. The following are the summarised balance sheets of v ltd and p ltd as at 31st march, 2012. For absorption and external reconstruction also same method n journal entries are used. These bills are supported by documents such as bill of lading, insurance policy etc. Reconstruction or amalgamation has no precise legal meaning. Accounting standard as 14 accounting for amalgamations. Fixed assets of both the companies are to be revalued at 20% above book value. Amalgamation, absorption, liquidation and reconstruction amalgamation by forming a new company. Amalgamation, as its name suggests, is nothing but two companies becoming one.
There are two methods of reconstruction which are internal reconstruction and external reconstruction. Section i amalgamation and external reconstruction introduction 2 1a. Reconstruction is a process of the companys reorganization, concerning legal, operational, ownership and other structures, by revaluing assets and reassessing the liabilities. In a number o c absorption a tion existing comp wing does. Related topics meaning and features of amalgamation. Is formed to take over the business of two existing companies, x ltd. In an amalgamation, two or more companies are fused into one by merger or by one taking over the other. Amalgamation of companies results in combination of companies, but external reconstruction does not result in any such combination. These are two business strategies adopted by the companies to expand itself and take a competitive position in the market. Amalgamation, absorption and reconstruction accounting. In the companies second amendment act, 2002 the power of the court has. Amalgamation, absorption and reconstruction of companies determining purchase.
Problems on amalgamation and external reconstruction. Amalgamation absorption and reconstruction of companies pdf printer. Absorption of companies is also included into amalgamation. Revised accounting standard as 14 accounting for amalgamations is applicable for the accounting periods commencing on or after april 1, 2017 after considering companies accounting standards amendment rules, 2016 g. Reserve bank a merger has been defined as the fusion or absorption of one thing or right into another. 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. Understand the concept of amalgamation of partnership firms.
As said above, absorption is brought about by the merger of one or more companies with an existing company and result is one liquidation and no formation. When the two companies are merged and are so joined as to form a third company or one is dissolved into one or blended with another. Difference between amalgamation and absorption with. Companies, their creditors or members or liquidator may at any time after the passing of the order, apply to the tribunal for determination of any question relating to the working of the compromise or arrangement. Sick industrial companies special provisions act, 1985, would be obtained and the transfer and vesting of the undertaking of amalgamating company with the amalgamated company would take effect. The nature of business of both companies is similar. Here is a compilation of top five accounting problems on amalgamation, absorption and reconstruction with its relevant solutions. The accounting record of absorption is similar to that of amalgamation. Amalgamation and external reconstruction 8 accounting. What are the differences between amalgamation, absorption. The book is designed as per the latest amendments of the company amendment act 2002.
In the companies second amendment act, 2002 the power of the court has been transferred to the company law tribunal. Amalgamation and external reconstruction 8 accounting problems. Provides complete clarity in a simple and lucid manner which will make it easy for students to understand the subject. Amalgamation term amalgamation is used when two or more existing companies. Amalgamation is a blending of two or more existing undertakings into one undertaking, the shareholders of.
Merger, amalgamation and reconstruction concept of merger. Definitions meaning of merger merger is an absorption of one or more companies by a single existing company. It is the process in which one existing company takes over the other existing company and merges together as a single unit. Advanced managerial accounts 1 multiple choice questions chapter. 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 the. The two companies may join to form a new company but there may be absorption or blending of one by the other, both amount to amalgamation. Accounting concepts and conventionsamalgamation, absorption and reconstruction of companies.
The process of external reconstruction is governed by the process of amalgamation in the nature of merger under the companies act, 20. All the propertyliability of the amalgamating company companies becomes the propertyliability of amalgamated company. However it deals with schemes of merger acquisition which are stipulated under section 391 to 394. Amalgamation absorption and reconstruction of companies. It is the process in which two or more existing companies joins together and start new company with new name and. As 14 accounting for amalgamation revised summary pdf. In amalgamation, the identity of both the companies exist and survive.
Part 190411 company reconstructions and amalgamations s587 author. Noun wikipedia amalgamation the process of amalgamating. Absorption of companies does not involve formation of a new company, however, external reconstruction involves formation of a new company, 2. For the purpose of this act the terms merger and amalgamation are synonymous. 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. Basis minimum number of companies involved number of new resultant compames objective example amal amation at least three companies are involved only resultant one company is formed. The format of the detailed balance sheet of a company in a horizontal form is given below. In the previous articles, we have given as 6 depreciation and as 26 intangible assets. Objectives after studying this unit, you will be able to. Amalgamation amalgamation is an arrangement or reconstruction. 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. A scheme of amalgamation normally should also contain.
Amalgamation involving intercompany shareholding as14 is silent on this point 20. The popular meaning of amalgamation is the dissolution of one or more companies and transfer. The companies court rules 1959, income tax act, 1961. Legal, accounting and taxation aspect of amalgamation. Consolidation vs amalgamation whats the difference. 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.
Pass necessary journal entries in the books of amalgamating old firms and also in the. Acquiring company is a single existing company that purchases the majority of equity shares of one or more companies. In the part 1 click here for part i accounting for amalgamation we learnt about nature of amalgamation and. This scheme is known as single window clearance scheme. External reconstruction and internal reconstruction meaning. External and internal reconstructions amalgamation of. Procedure to be followed for merger or amalgamation of two or more small companies or between a holding. Meaning and features of absorption accountingmanagement. It provides a composite code for facilitating mergers and amalgamations which obviates the need for making multiple applications under the act. Today we are providing the complete details of as 14 accounting for amalgamation i. It is also useful for the students pursuing management, commerce and pg courses of all the major universities.
Section 219 of the companies act, provides that two or more companies, including holding and subsidiary companies, may amalgamate and continue as one company. It is the conversion of two companies and two balance sheets into one company and one combined balance sheet. Two companies are wound up to form a single resultant com an. Section 587, deals with special types of company reconstruction and amalgamation under schemes of arrangement under section 201 as extended by section 203 and section 202, companies act, 1963, which may not technically involve an exchange of shares and also with certain.
Accounting for amalgamation, absorption and external. Accounting for amalgamation, absorption and external reconstruction 1. What are the differences between amalgamation, absorption and. 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. Aug 19, 2015 accounting for amalgamation partii amalgamation means the liquidation of one or more companies and transfer of business of liquidated entities to another entity. Problems on amalgamation, absorption and external reconstruction amalgamation problem no. The standard classifies an amalgamation process either in nature of merger, or in nature of the purchase. Amalgamation module vi amalgamation absorption and. Internal reconstruction of companies including reconstruction schemes. The terms merger and amalgamation have not been defined in the companies act, 1956 though this voluminous piece of legislation contains more than 50 definitions in section 2 of the act. Rules relating to compromises, arrangements, amalgamations. It is the process in which two or more existing companies joins external reconstruction. The former is the method in which the reconstruction is. In amalgamation two or more existing transferor companies merge together form a new company, whereby transferor companies lose their existence and their shareholders become the shareholders of the new company.
What are the different types of amalgamation procedures provided for under the companies act. External and internal reconstructions amalgamation of companies, advanced corporate accounting b com notes edurev notes for b com is made by best teachers who have written some of the best books of b com. Jan 04, 2018 amalgamation is when two or more companies merge. The companies act, 1956 does not define the term merger or amalgamation. We use your linkedin profile and activity data to personalize ads and to show you more relevant ads. Merger, amalgamation and reconstruction concept of. 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. Balance sheet as on 31st march 2014 liabilities anita ltd. 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. Generally, larger company purchase the business of smaller company. For reconstruction, the owner retains at least 90% of the assets directly or indirectly after the transfer.
Amalgamation means the liquidation of one or more companies and transfer of business of liquidated entities to another entity. In this article we will discuss about the top five problems on amalgamation and external reconstruction with their relevant solutions. Amalgamation absorption and reconstruction of companies module 5. On the other hand, absorption is the process in which the one dominant company takes control over the weaker company. It is an amalgamation in the nature of purchase because the assets of a co. Section 587, deals with special types of company reconstruction and amalgamation under schemes of arrangement under section 201 as extended by section 203 and section 202, companies act, 1963, which may not technically involve an exchange of shares and also. Sep 18, 2010 the two companies may join to form a new company but there may be absorption or blending of one by the other, both amount to amalgamation. However, from the accounting point of view, the distinction between amalgamation and absorption is of no practical significance. Amalgamation absorption and reconstruction of companies ppt. For company final accounts format as per revised schedule vi.