Page 113 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II Anand Thakur, Lovely Professional University

notes unit 6: external reconstruction of companies

contents

Objectives
Introduction
6.1 Concept of External Reconstruction
6.1.1 Legal Position as Regards External Reconstruction
6.1.2 Differences between Amalgamation and External Reconstruction
6.1.3 Differences between Absorption and External Reconstruction

6.1.4 Features of the Amalgamation, Absorption and External Reconstruction
6.2 Accounting for External Reconstruction
6.2.1 Purchase Consideration
6.2.2 Discharge of Purchase Consideration

6.3 Summary
6.4 Keywords
6.5 Review Questions
6.6 Further Readings

objectives

After studying this unit, you will be able to:

l z Define external reconstruction of companies
l z Explain the accounting for external reconstruction of companies

l z Describe the concept of purchase consideration and discharge of consideration
introduction

In the previous unit, we have discussed about the internal reconstruction of companies in detail.
Further in this unit we will study the external reconstruction of companies with the help of
illustrated examples.
Reorganisation or rearrangement of the capital structure of a business unit is called reconstruction
of the company. The objectives of the reconstruction of a company are not the same as those of
business combination. In the case of severe financial problems as overcapitalisation, heavy losses
and over valuation of fixed assets, reconstruction of the financial structure becomes necessary.
Reconstruction of the financial structures of the company is expressed to alter the rights and
interest of the shareholders, debenture-holders and creditors or outsider’s liability. On the
reconstruction of the company it may or may not go into liquidation.

6.1 concept of external reconstruction

Reconstruction refers to certain arrangements made by financially unsound companies. The
reconstruction arrangement made by a company, to come out of its financial difficulties, may
be external or internal. External reconstruction refers to closing/liquidating the company and

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