Amalgamation and Merger

Introduction

• Amalgamation covers GST 14
• Important chapter with significant weightage
• Can be challenging for students; follow instructions closely

Amalgamation Definition

• Refers to situations where one entity purchases/takes over another entity
• Example: Byju's taking over Aakash Institute
• Another example: Vodafone and Idea merging
• Reduces competition, leading to growth

Types of Amalgamation

Absorption

• One entity absorbs another
• Example: Byju's absorbing Aakash Institute
• Entity B ceases to exist, merges into Entity A

True Amalgamation (Amalgamation General Definitions)

• Two or more entities merge to form a new entity
• Example: Vodafone and Idea forming Vodafone-Idea
• Example: Zomato merging Blanket
• Entity A and Entity B together form Entity C

Accounting for Amalgamation

• Accounting Standard 14 (AS 14) is applicable
• Important for financial consolidation

Books of Transferor (Old Company)

1. **Close Balance Sheet:

   • Transfer all assets and liabilities to Realisation Account.
   • Transfer Preference Share Capital to Preference Shareholders’ Account.
   • Transfer Equity Share Capital and Reserves to Equity Shareholders’ Account.

2. Entry for Purchase Consideration:

   • Debit: New Company's Account
   • Credit: Realisation Account (with Purchase Consideration amount)

3. Adjust Preference Shareholders:

   • Debit: Preference Shareholders’ Account
   • Credit: New Company’s Account (with amount for Preference Shareholders)

4. Adjust Equity Shareholders:

   • Debit: Equity Shareholders’ Account
   • Credit: New Company’s Account (with amount for Equity Shareholders)

5. Close Realisation Account:

   • Any balance transferred to Equity Shareholders’ Account

6. Close Preference Shareholders’ Account and Equity Shareholders’ Account:

   • Transfer final balances to Realisation Account
   • Transfer balance of Realisation Account to Equity Shareholders’ Account

Books of Transferee (New Company)

1. Business Purchase Entry:

   • Debit: Business Purchase Account
   • Credit: Liquidator of Old Company

2. Assets and Liabilities Transfer:

   • Debit: Individual Assets
   • Credit: Business Purchase Account
   • Credit: Individual Liabilities

3. Preference Shareholders and Equity Shareholders

   • Credit: Preference Shareholders
   • Credit: Liquidator of Old Company

4. General Reserve:

   • The difference between Purchase Consideration and Old Equity Share Capital is transferred to General Reserve

Special Adjustments

Asset/Liabilities Not Taken Over

• If not mentioned, assume all assets/liabilities are taken over
• If cash/bank is not taken, create a separate account
• Realization proceeds to be posted on the credit side of Realization Account
• Any other asset not taken over tagged separately with balances transferred to Equity Shareholders’ Account

Expenses of Amalgamation

• If paid by transferor, Debit Realisation Account and Credit Cash/Bank Account
• If paid by transferee, no entry in the old company’s books
• If reimbursed, record as an expense and then as a recovery

Conclusion

• Amalgamation and merger are crucial for consolidating accounts
• Follow AS 14 guidelines for accounting
• Ensure all entries are properly categorized and balanced.

Example Questions

Example 1: Basic Amalgamation Accounting

• Company A and Company B merged to form Company C
• Transfer all assets, liabilities, and reserves
• Issue shares to old shareholders
• Adjust for any general reserves

Example 2: Real-Life Amalgamation Scenarios

• Examples like Vodafone-Idea, Byju's-Aakash

• Demonstrate real-world applications and adherence to accounting standards.

• Note: All exercises should ensure that the conceptual clarity of AS 14 is maintained and practical applications are demonstrated effectively.