The popular meaning of amalgamation is the dissolution of one or more companies and transfer. Mcq on amalgamation and external reconstruction revised 2020. Pdf amalgamation new method to merge and takeover companies. Merger, amalgamation and reconstruction concept of merger. 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. Absorption difference between amalgamation and absorption. Fixed assets of both the companies are to be revalued at 20% above book value. Buyers stamp duty bsd and sellers stamp duty ssd reliefs are applicable to transfer of undertaking or shares in respect of a scheme for the reconstruction or amalgamation of companies if the relief conditions are met. A scheme of amalgamation normally should also contain.
When an existing company takes over the business of one or more existing. In spite of much similarity in amalgamation an absorption, the main. Meaning of external reconstruction differences between. Amalgamation and external reconstruction 8 accounting problems. Reconstruction and amalgamation the company wished to avoid being wound up and negotiated a scheme in which the existing shareholdings in the company would be transferred to a new company which would take over the companys undertaking and assets as well as its debts. In amalgamation, one company merges with another company and forms a new company. The company that acquires the business is called the purchaser company and the seller of the business is called the vendor.
Such external reconstruction is essentially covered under the category amalgamation in the nature of merger in as accounting standard 14, accounting for amalgamations. In amalgamation, two or more companies are fused into one by merger or by one taking over the other. However, from the standpoint of business as well as accounting, there are several important differences between these two terms. 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. Amalgamation refers to corporate reconstruction in which two or more companies come together and fuse to form a new company. Reconstruction and amalgamation legal news law news. Amalgamation of companies preamble t he term amalgam means to unite, to come together as one, or to blend, and, from this. After the formation of the new merged amalgamated company, there are some necessary entries which are required to be passed. Amalgamation absorption and reconstruction of companies module 5. In this unit, we will discuss few important terms related to acquisition of business. An amalgamation is distinct from a merger because neither of the. External reconstruction is when one company changes its external structure. On the other hand, absorption is the process in which the one powerful company takes control over the weaker company. Scheme of amalgamation by absorption under sections 230.
The entity who gets absorbed goes into the liquidation process. Problems on amalgamation, absorption and external reconstruction amalgamation problem no. It is the conversion of two companies and two balance sheets into one company and one combined balance sheet. Mcq on amalgamation and external reconstruction revised 2020 facebook. Amalgamation is a broad term which includes mergers uniting of two existing companies and acquisition one company buying out another company. Difference between amalgamation and merger with infographics. External and internal reconstructions amalgamation of. In this case, a newly formed company takes over the business of an. Amalgamation, absorption and internal and external reconstruction. 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. Takes over assets and liabilities of both the companies on the following terms.
When two companies are merged and are so joined as to form third company or one is absorbed into other or blended with another, the amalgamating company loses its identity. Absorption is a form of merger where there is a combination of two or more companies into an existing company. Amalgamation absorption and reconstruction of companies module 5 amalgamation term amalgamation is. In other words, it is a merger of one or more companies with another in such a way that all assets and liabilities of the amalgamating companiesthe ones which are designed to shut down become assets and. Chapter1 accounts of amalgamation of companies jhbwc. Accounting for amalgamation, absorption and external reconstruction 1. Adopting the new zealand model, the companies amendment act 2005 allows two or more companies to amalgamate, which is a fusion of the companies and the vesting of all their assets and. Amalgamation of companies can be done in the form of absorption or consolidation. It is a process that involves combining of two or more companies as either absorption or as blend. When amalgamation is affected, some or all the assets and liabilities of the vendor companies, are transferred to the vendee company. When one of the existing companies take over business of another.
Jan 11, 2018 absorption or blending of one by the other. Unit iv amalgamation of companies for corporate accounting. Amalgamation means the merging of two or more than two companies for eliminating competition among them or for growing in size to achieve the economies of scale. Absorption of companies is also included into amalgamation. They are amalgamation, absorption, external reconstruction etc. The term amalgamation is used when two or more existing companies go intoliquidation and a new company is formed to take over the business of liquidated companies. Amalgamation free download as powerpoint presentation. Amalgamation of banking and government companies 8. Difference between merger and amalgamation difference. Amalgamation term amalgamation is used when two or more existing companies into liquidation and new co.
Amalgamation and reconstruction a write short notes on. 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. Meaning and features of absorption accountingmanagement. Introduction to amalgamation amalgamation of companies. Amalgamation is defined as a simple arrangement or reconstruction of business. Accounting for amalgamations and corporate restructuring 1 z 1 accounting for amalgamations and corporate restructuring topic 1. Understand selection from corporate accounting book. Amalgamation, absorption and reconstruction accounting. The payment for such absorption to the old entity can be made either in cash or in shares or mixture of both.
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 is defined as the combination of one or more companies into a new entity. Both the transferor and the transferee company shall make an application in the form of petition to the tribunal under section 230232 of the companies act, 20 for the puspose of sanctioning the scheme of amalgamation. Jan 04, 2018 amalgamation is when two or more companies merge. What are the differences between amalgamation, absorption. 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. Categorized under business difference between merger and amalgamation for most people, mergers and amalgamations are one and the same. Question 1 amalgamation and absorption of companiesa comparison. Internal reconstruction of companies including reconstruction schemes. 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. 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.
Feb 19, 2018 explained the concept and difference between amalgamation absorption and external reconstruction. Accounting for amalgamation, absorption and external. Hereby both the old companies loses their existence. Absorption of company, definition, meaning, example, journal. Amalgamation absorption and reconstruction of companies. Mar 07, 2014 accounting for amalgamation, absorption and external reconstruction 1.
Apr 09, 2020 external and internal reconstructions amalgamation of companies, advanced corporate accounting b com notes edurev is made by best teachers of b com. Banking company accounts insurance companies life and general insurance. The following points are relevant on account of the differences between internal and external reconstruction. The process of two or more companies combining to form a new company is called absorption. Amalgamation is the consolidation or combination of two or more companies known as the amalgamating companies usually the companies that operate in the same or similar line of business to form a completely new company whereas merger refers to the consolidation of two or more business entity to form one single joint entity with the new management structure and new business ownership where both. Features of absorption one or more companies are liquidated. Amalgamation occurs, when two or more companies decide to unite to carry on their business together.
In the two or more companies are liquidated a absorption b amalgamation c internal reconstruction d ex ternal reconstruction 9. Amalgamation or merger is also a method of reconstruction. Generally, larger company purchase the business of smaller company. Here is a compilation of top five accounting problems on amalgamation, absorption and reconstruction with its relevant solutions. The nature of business of both companies is similar. In the case of absorption, only one company survive and all other lose their identity. All the assets and liabilities are recorded in the new company and share capitals are recorded according to the purchase consideration.
In this case an existing company takes over the business of one or more existing companies. 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. Amalgamation is the combination of one or more companies into a new entity. Absorption of company is a way of business arrangement in which an existing company takes over the business of the another entity.
Absorption of companies does not involve formation of a new company, however, external reconstruction involves formation of a new company, 2. Difference between internal and external reconstruction. In a compromise, the parties intend to settle a dispute between them by a give and take arrangement. However, the respective rights and liabilities are determined under the scheme of amalgamation but the corporate entity of the transferor company ceases to exist with effect from the date, the amalgamation is made effective repatriation, compromise and reconstruction and amalgamation of schemes so that the interest of several members of the.
Amalgamation of companies results in combination of companies, but external reconstruction does not result in any such combination. However, from the accounting point of view, the distinction between amalgamation and absorption is of no practical significance. Internal reconstruction can be defined as the reorganization of the company, without liquidating the existing company and forming a new one. Advanced managerial accounts 1 multiple choice questions chapter. Absorption of companies does not involve formation of a new company, however, external reconstruction involves formation of a new company. Problems on amalgamation, absorption and external reconstruction.
It is an amalgamation in the nature of purchase because the assets of a co. Amalgamation is a blending of two or more existing undertaking into one undertaking, the shareholders of each. Explained the concept and difference between amalgamation absorption and external reconstruction. When the transferee company decides to compensate the transferor company on the basis of fair values of the assets and. However, one should remember that amalgamation as its name suggests, is nothing but two companies becoming one. Is formed to take over the business of two existing companies, x ltd. Financial, stamp duty and taxation aspects of amalgamation 6. Unit iv amalgamation of companies for corporate accounting bcom sem 4 delhi university. Further discussed the procedure and concept to calculation of purchase consideration. Amalgamation means the liquidation of one or more companies and transfer of business of liquidated entities to another entity. The accounting record of absorption is similar to that of amalgamation. Basis amalgamation absorption external reconstruction meaning. Amalgamation amalgamation is a process of unification.
Amalgamation and external reconstruction 8 accounting. The companies court rules 1959, income tax act, 1961. Know the various meanings of the terms amalgamation, absorption and external reconstruction. Where an undertaking is being carried on by a company and is in substance transferred, not to an outsider, but to another company consisting substantially of the same shareholders with a view to its being continued by the transferee company, there is a reconstruction. What are the differences between amalgamation, absorption and. There may be amalgamation either transfer of two or more undertakings to an existing company or new company. Amalgamation occurs when two or more companies are joined. Absorption of company, definition, meaning, example. Amalgamation is the consolidation or combination of two or more companies known as the amalgamating companies usually the companies that operate in the same or similar line of business to form a completely new company whereas merger refers to the consolidation of two or more business entity to form one single joint entity with the new management structure and new business ownership. Related topics meaning and features of amalgamation. Differences between absorption and external reconstruction 1. In absorption, one company is taken over by another and hence it loses its own core. Key differences between internal and external reconstruction.
The following information has been extracted from the balance sheets of p ltd. Amalgamation of companies by cacma santosh kumardownload. In corporate finance corporate finance overview corporate finance deals with the capital structure of a corporation, including its funding and the actions that management takes to increase the value of, an amalgamation is the combination of two or more companies into a larger single company. We use your linkedin profile and activity data to personalize ads and to show you more relevant ads.
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