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Unit 2: Amalgamation: Basics and their Concepts

Hainer also said, “The brands will be kept separate because each brand has a lot of value notes
and it would be stupid to bring them together. The companies would continue selling
products under respective brand names and labels.”
Question
Discuss the recent large mergers and acquisitions and their strategies in the Indian
context.
Source: http://www.casestudyinc.com/adidas-reebok-merger-case-study

2.4 summary

l z In accounting parlance, amalgamation means merger of two or more companies into one
new or existing company. Absorption, on the other hand, refers to acquisition of business
of one company by another company.

l z According to the Accounting Standard 14, “Accounting for Amalgamations” amalgamations
fall into two broad categories.

l z In the first category are those amalgamations where there is a genuine pooling not merely
of the assets and liabilities of the two companies but also of the shareholders’ interests and
of the businesses of these companies. Such amalgamations are known as “amalgamation
in the nature of merger”.
l z The second type of amalgamations are those which are in effect a mode by which one
company acquires another company and as a consequence the shareholders of the
company which is acquired normally do not continue to have a proportionate share in the
equity of the combined company or the business of the company which is acquired is not
intended to be continued. Such amalgamations are known as “amalgamation in the nature
of purchase.”

l z All the assets and liabilities of the transferor company become, after amalgamation, the
assets and liabilities of the transferee company.

l z 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.
l z 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.

l z Amalgamation of companies may give rise to problems of over-capitalisation.
l z Amalgamation of companies reduces the expenditure, cost and price of the products of the
bigger companies, smaller businessmen therefore, cannot last for long when confronted by
the bigger players.

2.5 keywords

Accident Fund and Workmen’s Compensation Fund: These funds are created out of profits to
meet any liability on these accounts in future.
Accumulated Losses: Accumulated losses are shown in the assets side of the balance sheet of a
company. Accumulated losses include debit.

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