Difference between amalgamation and absorption with. Student will be able to download pdf notes related to the course after subscribing to this course. Accounting for amalgamation, absorption and external reconstruction of companies 16 l 1. Here is a compilation of top five accounting problems on amalgamation, absorption and reconstruction with its relevant solutions. In amalgamation, there are minimum three companies involved, i. Jul 26, 2018 when two companies join and liquidate to give birth to a new company is known as amalgamation. Amalgamation involves the same entities and works as one, absorption involves a company that overpowers another company.
It is brought about by the fusion of blending of two or more undertakings carrying on the same type of business,or engaged in the same line of business activity. Amalgamation occurs when two or more companies are joined. While working in the corporate world or reading corporate news, we came across many technical terms related to the business and industrial world. Reconstruction is usually done when a firm is a loss making enterprise and it wants to turnaround. Jan 11, 2018 amalgamation is defined as the combination of one or more companies into a new entity. 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. Meaning of external reconstruction differences between. Amalgamation, reconstruction, mergers, takeover of.
Besides, companies court rules, 1959 lay down the procedure for carrying out amalgamations. Amalgamation is defined as the combination of one or more companies into a new entity. In the companies second amendment act, 2002 the power of the court has been transferred to the company. Amalgamation is a fusion between two or more companies to consolidate their business activities by establishing a new company having a separate legal existence. Accounting for amalgamation, absorption and external. Difference between amalgamation and absorption with table. However, one should remember that amalgamation as its name suggests, is nothing but two companies becoming one. Problems on amalgamation, absorption and external reconstruction amalgamation problem no. The amount of goodwill or capital reserve is recorded in the books of vendor company only. Absorption is the process in which the one leading company takes control over the weaker company. It also covers accounts with reference to incorporation and internal reconstruction of companies as well as amalgamation, absorption and external reconstruction of companies. The objective of reconstruction is to reorganize the total amount of the capital.
The simple difference between two is, when two or more companies become one entity i. Difference between amalgamation and absorption difference wiki. Amalgamation of companies results in combination of companies, but external reconstruction does not result in any such combination. Under this, there is reorganization of share capital, varying the rights of shareholders. Amalgamation or merger is also a method of reconstruction. This study is intended to give a basic idea about the meaning, background.
Absorption means one powerful company takes control over the weaker company. 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. Absorption is when one firm completely takes over the other firm including its assets and liabilities. It includes all modes of reorganizing share capital. Amalgamation, absorption and internal and external reconstruction.
According to as 14, amalgamation fall into two categories a. Financial accounting notes pdf for bba, bcom and mba download. In amalgamation of two companies aboth companies lose their existence bboth companies continue cany one company continues dnone of the above 40. The institute of chartered accountants of india introduced a new accounting standard known as accounting standard 14 as14 from 1. When the merger involves liquidation of one existing sick company and formation of one new company, it is called a internal reconstruction b absorption c external reconstruction d amalgamation 12. Corporate accounting manonmaniam sundaranar university. The reconstruction arrangement made by a company, to come out of its financial difficulties, may be external or internal. 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 for amalgamation, absorption and external reconstruction 1. Conversely, in absorption, only two companies are involved. Auditing concept, functions of an auditor, procedure of auditing, internal control and audit, qualifications of company auditor, auditors report. The procedure of reconstruction generates when a particular company transfers the undertaking as well as the property to an absolutely new company and its shareholders. The following are the summarised balance sheets of v ltd and p ltd as at 31st march, 2012. Apr 19, 2015 under the purchase method of amalgamation, the transferee company incorporates the assets and liabilities of the transferor company at fair value.
Amalgamation is defined as a simple arrangement or reconstruction of business. Amalgamation is voluntary in nature, whereas absorption can be discretionary or hostile. Unit iv amalgamation of companies for corporate accounting bcom sem 4 delhi university. Amalgamation, absorption and external reconstruction 7. In amalgamation, two or more companies are fused into one by merger or by one taking over the other.
In this unit, we will discuss few important terms related to acquisition of business. On the other hand, an external reconstruction is a form of corporate restructuring wherein the existing company is liquidated to give birth to a new company, for continuing the business of the existing one. There are no book in india i have seen where difference among the amalgamation, absorption,external reconstruction,marger has been cleared. What are the differences between amalgamation, absorption and. It is a combination of two or more businesses into a single business enterprise. The subject assigned to me is very vast, interesting and timely and perhaps not susceptible to any precise definition. Mar 07, 2014 accounting for amalgamation, absorption and external reconstruction 1.
Problems on amalgamation, absorption and external reconstruction. Two or more companies join to form a new company absorption or blending of one by the other. This was to be effected by a scheme for reconstruction which would result. Paid by new company and liquidation expenses of rs. Ppt business reconstruction bertilda rwegasira academia. But for a normal human, it is difficult to differentiate between two. Prior to 1st april 1995, the accounting procedures for amalgamation were under three different treatment, that is, amalgamation, absorption and reconstruction of companies. What are the differences between amalgamation, absorption. 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. Internal reconstruction of companies including reconstruction schemes. Absorption of companies is also included into amalgamation. Introduction to amalgamation amalgamation of companies.
Amalgamation in the nature of purchase is an amalgamation which does not satisfy any one or more of the conditions mentioned above. Amalgamation, absorption and external reconstruction. The balance sheets of the two companies as on 31st march, 2012 stood as under. External reconstruction refers to closingliquidating the company and starting again a. Amalgamation, absorption and reconstruction sm joshi college. Differences between absorption and external reconstruction 1.
It is the conversion of two companies and two balance sheets into one company and one combined balance sheet. 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. Problems on amalgamation and external reconstruction. External and internal reconstructions amalgamation of. What is the basic concept of amalgamation and reconstruction. Redemption of preference shares and buy back of equity shares 9. On amalgamation, share issue expenses ac appearing on assets side of the balance sheet of the vendor company a is closed by debit to realisation ac b is closed by debit to equity. Internal reconstruction can be defined as the reorganization of the company, without liquidating the existing company and forming a new one. Reconstruction and amalgamation legal service india. But, absorption is a merging procedure in which the consequential concern may be new or maybe a standing or existing concern. Term is used when one existing company goes into liquidation and a new co. Absorption of companies results in liquidation of one or more companies while external reconstruction results in liquidation of only one company. Amalgamation absorption and reconstruction of companies.
Absorption of companies does not involve formation of a new company, however, external reconstruction involves formation of a new company, 2. The company that acquires the business is called the purchaser company and the seller of the business is called the vendor. Two or more companies combining to form a new company is called absorption. When purchasing company pays purchase consideration, it will be debited to. Miscellaneous expenditure is transferred to realisation account in the books of the transferor company. Meaning of amalgamation amalgamation refers to the process of merger of two or more companies into a single entity or where one company takes over the other by outright purchase. Amalgamation outcome in the construction of a completely new or different concern or company. Amalgamation and external reconstruction multiple choice.
Amalgamation absorption and reconstruction of companies module 5 amalgamation term amalgamation is used when two or more existing companies. In computing purchase consideration by net asset method all assets including fictitious assets should be considered. Amalgamation occurs when two or more companies are joined to form a third entity or one is absorbed into or blended with another. 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 company s undertaking and assets as well as its debts.
Absorption is a process whereby one company occupies control over the other company. The difference between amalgamation and absorption is that amalgamation is the merging of two or more companies to form a new company, absorption means when a company undertakes another company but does not form a new company. The amalgamation or the reconstruction process may take the following interesting forms. There are differenent types of rules and provison are there. Amalgamation, absorption and reconstruction accounting. The companies ordinance, among other things, provides for compromise, arrangements, amalgamations and reconstruction. Amalgamation of companies by cacma santosh kumardownload chapter pdf.
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. The term signifies the restructuring undertaken by a company and company secretaries play a predominant role in devising, designing, executing and completing the restructuring process. Part 190411 company reconstructions and amalgamations s587 author. Company accounts amalgamation and external reconstruction. When two or more companies go into liquidation and one new company is formed it is called amalgamation.
Amalgamation absorption and reconstruction of companies module 5 amalgamation term amalgamation is used when two or more existing companies into. Amalgamation and external reconstruction 8 accounting. The text focuses, in particular, on the accounts of banking and insurance companies. Old companies called as vendor companies and new company. There is a transfer of an undertaking of a company into another company. Which section of the companies act 1956 will be applied for redemption of shares. 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. Amalgamation and external reconstruction 8 accounting problems. The term absorption is used when an existing company takes over the business of one or more existing companies which go into liquidation. Reconstruction refers to certain arrangements made by financially unsound companies. 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. Reconstruction means reorganization of a company s financial structure. Absorption of companies does not involve formation of a new company, however, external.
Fixed assets of both the companies are to be revalued at 20% above book value. Meaning, internal reconstruction refers to restructuring of the existing company to set off. Amalgamation is when two firms come together to become one unit and they both have a share in the new firm. Reconstruction of companies module 5 amalgamation term amalgamation is used when two or more existing companies into liquidation and new co. In amalgamation, the identity of both the companies exist and survive. Assets and liabilities of the transferor company will be taken over by the transferee company at their book value. Meaning of amalgamation amalgamation is a form of combination. Amalgamation, absorption and reconstruction nature of purchase, purchase consideration, accounting in the books of transferor and transferee company. Here is the video about purchase consideration under amalgamation, absorption and external reconstruction, in that we have seen calculation of purchase cons. Jan 10, 2020 amalgamation is a type of integration processes used under an absorption. Amalgamation, reconstruction, mergers, takeover of companies. Amalgamation and absorption are two different terms used in the corporate world.
Takes over assets and liabilities of both the companies on the following terms. Corporate accounting pdf notes academy of accounts. Merger, amalgamation, acquisition, take over ppt download. The transferee company must carry on the same nature of business as that of the transferor company. In computing purchase consideration by net asset method all assets. Basic understanding about absorption, amalgamation and external reconstruction. Legal, accounting and taxation aspect of amalgamation. It is a process that involves combining of two or more companies as either absorption or as blend. Unit iv amalgamation of companies for corporate accounting. Therefore, the term amalgamation contemplates two kinds of activities. 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.
Merger and amalgamation under companies act 20 enterslice. Difference between external reconstruction and absorption. A amalgamation b absorption c reconstruction d none of the above 39. Amalgamation of companies by cacma santosh kumar youtube.
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