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Unit 2: Amalgamation: Basics and their Concepts

Objectives of Amalgamation & Absorption notes
These are as follows:

(1) To eliminate or reduce cut-throat competition.
(2) To reap the economies of the production of goods and services on a large scale.
(3) To gain control over the market.
(4) To gain the benefits of the service of the experts.
(5) To promote research and development schemes.

(6) To derive the other advantage of the amalgamation.

Notes In absorption, an existing company takes over the business of one or more existing
companies, which dissolve their businesses.

2.1.2 types of amalgamation

According to AS-14 for the purpose of accounting, the amalgamation of companies is divided
into two categories:

amalgamation in the nature of merger

Upon the satisfaction of the following conditions of AS-14, the amalgamation of the companies
is considered as merger:
(i) All the assets and liabilities of the transferor company become, after amalgamation, the
assets and liabilities of the transferee company.
(ii) Shareholders holding not less than 90% of the face value of the equity shares of the
transferor company (other than equality shares already held therein, immediately before
the amalgamation of the transferee company or its subsidiaries or their nominees) become
equity shareholders of the transferee company by virtue of amalgamation.

(iii) The consideration for the amalgamation receivable may those equity shareholders of the
transferee company is discharged by the transferee company wholly by the issue of equity
shares in the transferee company, except that cash may be paid in respect of any fractional
shares.
(iv) The business of the transferee company is intended to be carried on, after the amalgamation
by the transferee company.
(v) No adjustment is intended to be made to the book values of the assets and liabilities of the
transferor company when they are incorporated in the financial statements of the transferee
company, except to ensure uniformity of accounting policies.

amalgamation in the nature of purchase

If an amalgamation does not satisfy any one or more of the conditions mentioned above for
amalgamation in the nature of merger, such an amalgamation is called the amalgamation in the
nature of purchases.

Example: If X Ltd. purchases the business of Y Ltd. with an intention not to continue the
business of Y Ltd., it will be an amalgamation in the nature of purchase and not merger.

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