Saturday, February 4, 2012

AS 14

Accounting treatment for amalgamation under AS - 14 Accounting standard 14 provides the guidelines for accounting treatments of amalgamation or mergers. If we see corporate sector, every big company is purchasing other his competitors because of many benefits of monopoly. One of example of Google Inc. which is USA company and it purchased you tube, feed burner and also interested to buy other companies. In India, Satyam is purchased by tech mahindra. So, it is general word which is famous in corporate sector. Definition of Amalgamation ( I ) As a merge of two companies into one new companies Suppose A Co. and B co. merge into a new company C . This is amalgamation . ( II ) If one company is purchased by other company this is also amalgamation . Suppose A company is purchased by B co. , then this is called A is amalgamated into B Co. Its definition is under the pursuant of the provisions of Indian Company act 1956 and all rules and regulation of Indian company act will apply on accounting treatment of amalgamation. System of Accounting in Amalgamation If you understand the system of accounting in amalgamation, it is so interesting and high professional accountant can treat on correct accounting treatment of amalgamation. i) Amalgamation by Pooling of Interest or amalgamation as merge Under this system there are following rules and regulations will apply. (A) All the assets and liabilities of Transferor Company will become the assets and liabilities of Transferee Company. (B) All the shareholders of Transferor Company will become the shareholders of Transferee Company. ii ) Amalgamation by purchase consideration When a company purchases other company at this time company will pay purchase consideration to its shareholder under following method. a) Fixed and lump sum amount is given by purchasing company to amalgamating company Suppose A company is amalgamate into B co. and under agreement B Co. will pay $ 5000000. This is purchase consideration under lump sum method. b) Net word method Under this method a company who purchase other company calculates the net word of company and on the basis of net worth, purchase price is determined. Calculation of purchase price = Total assets purchased by co. Under agreed value - total liabilities taken by company Suppose A company purchases B co. and it taken the All assets at $ 100000 and also take its liabilities at $ 20000, then purchase price of company is = $ 100000 - $ 20000 Company can pay this purchase price in cash, bank or by issuing new shares or debenture by agreement between both companies. Journal entries of amalgamation related even is as same as dissolution of firm in vendor company . 1. When all assets purchased by other company , all assets will transfer to realization account Realisation account debit Assets Account Credit 2. When all liabilities taken by purchasing company , all liabilities will transfer to realization account Liabilities account debit Realisation account Credit 3. When purchase price is determined Purchase company account debit Realisation account credit 4. when vendor company receives the purchase price Bank Account debit Shares in purchasing company account debit Debenture in purchasing company account debit purchasing company accounting credit 6. Profit on sale of assets which is not taken over by purchasing company Bank account debit ( Getting the money from sale of assets ) To assets account ( Book value To realization account ( Profit ) 7. Treatment of liabilities which is not taken by purchasing company Liabilities account debit Realisation account debit ( If paid excess to creditors ) Bank account credit Realisation account credit ( If paid less to creditors ) 8. When liquidation expenses paid by vendor company Realisation account debit Bank account credit Closing of realization account 9. If profit on realization account Realisation account debit Shareholder account credit 10. If loss Shareholder account debit Realization account credit

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