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Unit 4: Amalgamation: Accounting Treatment
Ashwani Panesar, Lovely Professional University

unit 4: amalgamation: accounting treatment notes

contents

Objectives
Introduction
4.1 Calculation of Purchase Consideration
4.2 Accounting Treatment
4.2.1 Journal Entries in the Books of Transferor Company
4.2.2 Journal Entries in the Books of Transferee Company

4.3 Summary
4.4 Keywords
4.5 Review Questions
4.6 Further Readings

objectives

After studying this unit, you will be able to:
l z Discuss the calculation of purchase consideration
l z Describe the accounting treatment of amalgamation

l z Explain the difference between pooling of interest and purchase method
l z Categorise the journal entries in the books of transferor company and transferee company

introduction

In the previous two units, we have discussed the basic concepts of amalgamation and accounting
standards procedures.
Accounting Standard came into effect in respect of accounting periods starting on or after
April 1, 1995. This statement deals with accounting for amalgamations and the treatment of any
resultant goodwill or reserves. As per the Accounting Standard (AS)-14, there are two methods
of accounting for the amalgamation of companies in the books of Transferee Company. They are:
the pooling of interest method and the purchase method.
In this unit, we will elaborate and focus on accounting treatment of amalgamation on various
bases. Firstly we will focus on calculation of purchase consideration. Four methods will be
discussed in detail with illustrations to determine the amount of purchase consideration. Then
focus is given on the journal entries which are passed in the books of Transferor Company and
in the books of Transferee Company.

4.1 calculation of purchase consideration

The purchase consideration is that amount which is determined at the time of amalgamation.
In other words, it is that amount which is payable by the transferee company (purchasing
company) to the transferor company (vendor company) for the purchase of business. Purchase
consideration may be paid in cash, shares, debentures or other securities. As per Accounting
Standard (AS)-14 “consideration is the aggregate of the shares and the other securities issued

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