Page 33 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

notes self assessment

State whether the following statements are true or false:
1. In the case of amalgamation, two or more companies go into liquidation to form a new
company.
2. Absorption of companies is also included into amalgamation.
3. Taking over the business of one company by another company, is called amalgamation.

4. External reconstruction of company means the reduction of its share capital.
5. Upon the formation of a new company and liquidation of another existing company,
external reconstruction takes place.

2.2 Difference between amalgamation in case of merger and
purchase of companies

In the case of an amalgamation of companies in the nature of merger, the identity and business
of the Transferor Company and Transferee Company remain in existence. Assets, liabilities and
reserves of both the companies are pooled and then shown in the annual financial statements.
Along with these, the shareholder interest of both the companies continues.
While in an amalgamation of companies in the natures of purchase, one company acquires
another company with an intention of not running the business of Transferor Company. The
shareholders of the transferor company normally do not continue to have a proportionate share
in the equity of the transferee company.
!
Caution 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.
2.2.1 merits of amalgamation

The merits are as follows:
1. After the amalgamation of two or more companies, the prevailing competition among
themselves is eliminated.

2. On the amalgamation of two or more companies, certain expenses are reduced.
3. When two or more companies amalgamate themselves, it is easy for them to control the
market through the supply of goods.
4. If there is an amalgamation of two or more companies, there will be more capital and the
problem of finance will be removed.
5. After amalgamation of companies, there will be greater control on the business.
6. Production on a larger scale is possible through the amalgamation of two or more
companies.
7. In the case of amalgamation, it is possible to avail of the services of experts otherwise,
heavy remuneration has to be paid to experts.

8. After the amalgamation of companies, distribution channel of the products becomes easy.

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