11.30.2017

AS-14 ACCOUNTING FOR AMALGAMATIONS

This is short note on Accounting Standard or AS 14, Accounting for amalgamation which deals with accounting to be done in case of two companies amalgamated,like nature of amalgamation,methods of accounting for amalgamation and disclosure to be made.


Applicability
The standard deals with accounting to be made in the books of Transferee company in case of amalgamation.

Accounting Standard is not applicable to cases of acquisition of shares where the acquired company is not disallowed and continues to exist.

Accounting Standard is applicable where acquired company is dissolved and separate entity ceased to exist.

Key Terms :
Transferor Company means the company which is amalgamated into another company.

Transferee Company means the company into which a transferor company is amalgamated.

Nature of Amalgamation
Amalgamation in the nature of merger: It is an amalgamation which satisfies all the following conditions :
  • All the assets and liabilities of the transferor company become the assets and liabilities of the transferee company after amalgamation.

  • Shareholders holding not less than 90% of the face value of the equity shares of the transferor company become equity shareholders of the transferee company by virtue of the amalgamation.

  • The consideration to equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged wholly by the issue of equity shares in the transferee company, except that cash for fractional shares.

  • The business of the transferor company is intended to be carried on by the transferee company after amalgamation.

  • Assets and liabilities of the transferor company should be taken over and incorporated in financial statements of transferee company at book value, except to ensure uniformity of accounting policies.

Amalgamation in the nature of purchase: It is an amalgamation which does not satisfy any one or more of the five conditions specified above.

Methods of Accounting for Amalgamations :
There are two main methods of accounting for amalgamations:

  1. Pooling of interests method; and
  2. Purchase method.

Disclosure :
For all amalgamations, following disclosures should be made in the first financial statements:

  • Names and general nature of business of the amalgamating companies.

  • Effective date of amalgamation for accounting purposes.

  • Method of accounting used to reflect the amalgamation.

  • Particulars of the scheme sanctioned under a statute.

For amalgamations accounted for under the pooling of interests method, the following additional disclosures should be made in the first financial statements following the amalgamation:

  • Description and number of shares issued, together with the percentage of each company’s equity shares exchanged to effect the amalgamation;

  • Amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof.

For amalgamations accounted for under the purchase method, the following additional disclosures should be made in the financial statements following the amalgamation:

  • Consideration for the amalgamation and a description of the consideration paid or contingently payable.

  • Amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof including the period of amortization of any goodwill arising on amalgamation.