Introduction When two or more companies carrying on similar business go into liquidation and a new company is formed
to
take
over
their
business,
it
is
called
amalgamation. In other words, amalgamation refers to the formation of a new company by taking over the business of two or more existing companies doing similar type of business. In amalgamation, two or more companies are liquidated and a new company is formed to take over the business of liquidating companies. The companies which go into liquidation are called vendor or amalgamating companies where as the new company which is formed to take over the business of liquidating companies is called purchasing or amalgamated or transferee company. The main aim of amalgamation is to minimize the possibility of cut-throat competition and to secure the advantages of large scale production. Before we proceed to know, What is Amalgamation? First let's understand the meaning of two terms viz., 'amalgamating companies' and 'amalgamated company'. The meaning of these terms is as follows: 1. Amalgamating companies are those two or more companies which willingly unite (combine) to carry on their business activities jointly.
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2. Amalgamated company is a newly formed union (alliance) of two or more amalgamating companies. It has a separate legal existence with a new unique name. Now let's discuss the meaning of amalgamation with some examples. To amalgamate means to unite or combine or blend. It is an act or process in which two or more things fuse together to form a new potent thing. Amalgamation is an emerging trend of today's business world. It results in the formation of a new, strong, stable and large company. It also results in the growth and expansion of this newly formed company. During amalgamation, two or more companies willingly come together to cooperate with each other and diversify (expand) their business activities. After
amalgamation,
two
or
more
companies
dissolve
(disintegrate) and lose their individual legal status (existence), hence they no longer exist anymore. However, they again re-establish themselves, but now jointly, by forming a new company having a unique name. Thus, amalgamation results in the formation of a new (separate) company which has a unique name, logo, identity and existence. The management of amalgamated company is led (directed) by members of two or more companies getting amalgamated. Page 2 of 28
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DEFINITION of 'Amalgamation' The combination of one or more companies into a new entity. An amalgamation is distinct from a merger because neither of the combining companies survives as a legal entity. Rather, a completely new entity is formed to house the combined assets and liabilities of both companies. Amalgamation is defined as a simple arrangement or reconstruction of business. It is a process that involves combining of two or more companies as either absorption or as blend. Two or more companies can either be absorbed by an entirely new firm or a subsidiary powered by one of the basic firm. In such cases all the shareholders of the absorbed company automatically become the shareholders of the ruling company as the amalgamating company loses its existence.
All
the
assets
and
liabilities
are
also
transferred to the new entity. Amalgamation
has
given
different
forms
to
different actions in due course of the merger taking place. It can either be classified in the nature of merger or in the nature of purchase. If the process takes place in the nature of merger then the all assets, liabilities, and shareholders holding not less than 90% of equity shares
are
automatically
transferred
to
the
new
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company or the holding company by virtue of the amalgamation. When amalgamation takes place in nature of purchase then the assets and liabilities of the company are taken over by the ruling company. All the properties and characteristics of amalgamating company should vest with the other company. Even the shareholders holding shares not less than 75% should transfer their shares to the transferee company. In such a case any company does not purchase the business resulting in a takeover, the transferor company does not completely lose its existence.
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Features Of Amalgamation * Two or more existing companies are liquidated. * A new company is formed to take over the business of liquidating
companies.
* The nature of business of existing companies is similar. * Liquidating companies are called vendor companies and the new company is called purchasing company. * Generally, purchase consideration is discharged by the issue of equity shares of purchasing company. "Amalgamation" is Dissolution of one or more Companies and Transfer of Business to Another Entity. Companies
which
come
together
are
Known
as
"Amalgamating companies" or" Transferor Companies" , Companies
which
the
Transferor
companies
get
amalgamated into is "Amalgamated Company" Amalagamation includes Absorbtion.Absorbtion is Aquisition of business of Existing company. AS 14 doesn't Cover parent subsidiary relationship where one company Acquires control over other without impinging
the
Legal
independent
Status
of
other
company.It is Dealt with under AS21. AS 14 brings Concept of Amalgamation under two broad categories. First Amalgamation in nature of “Merger” , Under this category there is Genuine pooling of
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o Not
merely
Assets
and
Liabilities
of
the
Amalgamating companies o But also the interest of Shareholders and business of the companies. Second is Amalgamation in Nature of “Purchase” . o A mode by which one company acquires another company and o As a consequence the shareholders of company which acquired normally do not continue to possess interest in equity of the combined company in an identical proportion to that held by them in liquidated company. Also the business of company which acquired is not necessarily intended to be continued. AS 14 gives 5 Specific conditions on fulfillment of which Amalgamation is treated as merger.
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Five Conditions 1. All the ASSETS and liabilities of transferor company become assets and liabilities of transferee company. 2. Shareholders of SC holding not less than 90 % of “Face value” of equity shares become shareholders of PC by virtue of “Amalgamation” computing 90%
. For purpose of
, Following shares are not be
considered a. Shares held by PC in SC b. Shares held by One or more subsidiaries of PC in SC c. Nominees of PC in SC 3. The Consideration Paid to Equity shareholders of SC is in form of Equity shares of PC , Except cash may be paid for Partial shares. 4. Business of is intended to be continued on after amalgamation by PC and 5. Assets and liabilities of SC are incorporated in financial statements of the PC at book values except to ensure uniform accounting policies. AS 14 provides two methods of accounting for AS 14 ,Which are Pooling of Interest method for
Amalgamation in
nature of Merger Purchase method of Amalgamation in nature of purchase.
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Salient features of Pooling of interest method. 1. In preparing the financial statements of PC the Assets and Liabilities of SC should be recorded at their existing values and in the same form as on date of amalgamation. The balance of P&L account should be aggregated with corresponding balance of PC . 2. If at time of amalgamation , transferee and transferor
company
were to
have conflict of
accounting policies , Such conflict is resolved and brought in line with policy adopted by PC . 3. The Difference between amount recorded as Share capital issued and amount of capital of SC should be adjusted in reserves . Accordingly No goodwill or Capital reserve will Arise. Salient features of Purchase method. 1. The Assets and Liabilities of SC are incorporated in financial statements of PC at existing values . Alternatively the purchase consideration should be allocated to individual indentifiable assets
and
liabilities on basis of fair values. 2. Identity of Non statutory reserves of SC is not preserved . Hence such reserves should not be included in financial statements of PC 3. If purchase consideration is more than net assets of PC , then the difference is credited to goodwill, Alternatively if Purchase consideration is less than Net assets of PC the difference is credited to Capital reserve. Page 9 of 28
4. Goodwill arising out of Amalgamation should be amortized over its useful life not exceeding period of Five years. 5. Where the requirements of relevant statute demands “Statutory reserve” of SC to be recorded in financial statements of PC . While crediting the statutory reserve the debit needs to be given to “Amalgamation adjustment A/c” . The Account should be disclosed under “Misc expenditure . Impact on AS 4 – Amalgamation after balance sheet date. Where Amalgamation happens after Balance sheet date , the Impact cannot be shown as part of Financial statements and hence
needs to be disclosed in
directors report.
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Accounting for amalgamations A. Computation of Purchase consideration Net assets Method Assets taken over at fair values - XXXX Less : Liabilities taken over at agreed amounts XXXX _____ Net Assets / Purchase Consideration XXXX ===== Payments Aggregate of shares paid to various shareholders.
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B.
Transferor Company accounting. Tranfer to realization account : Realization A/C To Assets
Dr
Liabilities A/C To Realization
Dr
Purchase consideration . Due entry : Transferee Company To Realisation
Dr
Payment entry Shares in transferee company Bank Dr To transferee company
Dr
Sale of Assets Not taken over Bank
Dr To Assets (Book value) To Realisation ( Profit)
Settlement of Liabilities Not taken over Liabilities To Bank
Dr
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To Realisation Realisation Expenses a. Incurred by transferor company Realisation A/C To Bank
Dr
b. Incurred by transferor company and reimbursed by transferee company Transferee Company A/C To Bank
Dr
Bank Dr To Transferee company c. Incurred by Transferee company No Entries Amount Due to equity share holders. Equity share capital Reserves To Shareholders
Dr Dr
Transfer of Balance of realization Realsisation A/C To Shareholders Settlement
to
Dr
Shareholders
by
transfer
of
Consideration received. Share holders A/C
Dr
T o Shares in Purchasing company To Bank
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Transferee Company Accounting 1. Accounting should be done as per AS 14 2. Accounting should be done as per Mode of Amalgamation. Purchase method Due Entry for Business Consideration Business Purchase Dr To Liquidator of transferor company Incorporation of Assets and liabilities taken over Assets Assets A/C Dr Goodwill Dr To Liabilities To Business Purchase To Capital reserve Discharge of Purchase consideration Liquidator of transferor company A/C To Share capital To Securities premium To Bank
Dr
Others Cancellation of Intercompany Owings. Creditors To Debtors
Dr
Elimination of Unrealized Profits on goods sold by one company to another and remaining unsold as of date of amalgamation Goodwill /Capital reserve Dr Page 14 of 28
To Stock Reserve Realisation Expenses Goodwill/Capital reserve Dr To bank Contra entry for statutory reserve
of which liability is
not yet fulfilled Amalgamation adjustment To Statutory reserve
Dr
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Example of Amalgamation Consider the example of amalgamation shown in the following diagram.
In the above example, Company 'A' and Company 'B' are operating (existing) in the market. Company 'A' is one amalgamating company while Company 'B' is another amalgamating company. Company 'A' and Company 'B' are getting amalgamated to form a new (separate) Company named 'AB'. In this example of amalgamation, Company 'A' and Company 'B' will surrender all their equity shares (ownership shares) to the newly formed Amalgamated Company 'AB'. The assets and liabilities of Amalgamating Companies 'A' and 'B' will be transferred to Company 'AB'. The shareholders of the Company 'A' and Company 'B' will be given the shares of Company 'AB'. The amalgamating companies 'A' and 'B' will lose their individual existence (identity) and continue to operate jointly under the name of Company 'AB'.
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Two good examples of amalgamations are as follows: 1. Maruti Motors operating in India and Suzuki based in Japan amalgamated to form a new company called Maruti Suzuki (India) Limited. 2. Tata Sons operating in India and AIA Group based in Hong Kong amalgamated to form a new company called TATA AIG Life Insurance.
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Maruti suzuki Maruti Suzuki India Limited is an automobile manufacturer in India. It is a subsidiary of Japanese automobile and motorcycle manufacturer Suzuki. As of November 2012, it had a market share of 37% of the Indian passenger car markets. Maruti Suzuki manufactures and sells a complete range of cars from the entry level Maruti 800, Alto, to the hatchback Ritz, Celerio, , A-Star, Swift, Wagon R, Zen and sedans DZire, Ciaz, Kizashi and SX4, in the 'C' segment Eeco, Omni, Multi Purpose vehicle Suzuki Ertiga and Sports Utility vehicle Grand Vitara. The company's headquarters are at No 1, Nelson Mandela Road, New Delhi. In February 2012, the company sold its ten millionth vehicle in India. Joint venture related issues Relationship between the Government of India, under the United Front (India) coalition and Suzuki Motor Corporation over the joint venture was a point of heated debate in the Indian media until Suzuki Motor Corporation gained the controlling stake. This highly profitable joint venture that had a near monopolistic trade in the Indian automobile market and the nature of the partnership built up till then was the underlying reason for most issues. The success of the joint venture led Suzuki to increase its equity from 26% to 40% in 1987, and further to 50% in 1992. In 1982 both the venture partners had entered into an agreement to nominate their candidate for the post of Managing Director and every Managing Director will have a tenure of five years Page 18 of 28
R.C. Bhargava was the initial managing director of the company since the inception of the joint venture. Till today he is regarded as instrumental for the success of Maruti Suzuki. Joining in 1982 he held several key positions in the company before heading the company as Managing Director. Currently he is on the Board of Directors. After completing his five-year tenure, Mr. Bhargava later assumed the office of Part-Time Chairman. The Government nominated Mr. S.S.L.N. Bhaskarudu as the Managing Director on 27 August 1997. Mr. Bhaskarudu had joined Maruti Suzuki in 1983 after spending 21 years in the Public sector undertaking Bharat Heavy Electricals Limited as General Manager. In 1987 he was promoted as Chief General Manager. In 1988 he was named Director, Productions and Projects. The next year (1989) he was named Director of Materials and in 1993 he became Joint Managing Director. Suzuki did not attend the Annual General Meeting of the Board with the reason of it being called on a short notice. Later Suzuki Motor Corporation went on record to state that Bhaskarudu was "incompetent" and wanted someone else. However, the Ministry of Industries, Government of India refuted the charges. Media stated from the Maruti Suzuki sources that Bhaskarudu was interested to indigenise most of components for the models including gear boxes especially for Maruti 800. Suzuki also felt that Bhaskarudu was a proxy for the Government and would not let it increase its stake in the venture. [21] If Maruti Suzuki would have been able to indigenise gear boxes then Maruti Suzuki would have been able to manufacture all the models without the technical assistance from Suzuki. Till today the issue of localization of gear boxes is highlighted in the press.
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Manufacturing facilities Maruti Suzuki has two manufacturing facilities in India. Both manufacturing facilities have a combined production capacity of 14,50,000 vehicles annually. During a recent meeting of the Gujarat chief minister with Suzuki Motor Corp chairman & CEO Osamu Suzuki,the Chairman had said that the work on car manufacturing plant at Mandal near Ahmedabad would be started soon. Maruti Suzuki to set up second plant in Gujarat; acquires 600 acres. The Gurgaon manufacturing facility has three fully integrated manufacturing plants and is spread over 300 acres (1.2 km2). All three plants have an installed capacity of 350,000 vehicles annually but productivity improvements have enabled it to manufacture 900,000 vehicles annually. The Gurgaon facilities also manufacture 240,000 KSeries engines annually. The entire facility is equipped with more than 150 robots, out of which 71 have been developed in-house. The Gurgaon Facilities manufactures the 800, Alto, WagonR, Estilo, Omni, Gypsy, Ertiga, Ritz and Eeco. The Manesar manufacturing plant was inaugurated in February 2007 and is spread over 600 acres (2.4 km2). Initially it had a production capacity of 100,000 vehicles annually but this was increased to 300,000 vehicles annually in October 2008. The production capacity was further increased by 250,000 vehicles taking total production capacity to 550,000 vehicles annually. The Manesar Plant produces the A-star, Swift, Swift DZire, SX4, Ritz and Celerio.
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On 25 June 2012, Haryana State Industries and Infrastructure Development Corporation demanded Maruti Suzuki to pay an additional Rs 235 crore for enhanced land acquisition for its Haryana plant expansion. The agency reminded Maruti that failure to pay the amount would lead to further proceedings and vacating the enhanced land acquisition. Industrial relations Since its founding in 1983, Maruti Udyog Limited experienced problems with its labour force. The Indian labour it hired readily accepted Japanese work culture and the modern manufacturing process. In 1997, there was a change in ownership, and Maruti became predominantly government controlled. Shortly thereafter, conflict between the United Front Government and Suzuki started. Labour unrest started under management of Indian central government. In 2000, a major industrial relations issue began and employees of Maruti went on an indefinite strike, demanding among other things, major revisions to their wages, incentives and pensions. Employees used slowdown in October 2000, to press a revision to their incentive-linked pay. In parallel, after elections and a new central government led by NDA alliance, India pursued a disinvestments policy. Along with many other government owned companies, the new administration proposed to sell part of its stake in Maruti Suzuki in a public offering. The worker's union opposed this sell-off plan on the grounds that the company will lose a major business advantage of being subsidised by the Government, and the union has better protection while the company remains in control of the government. Page 21 of 28
The standoff between the union and the management continued through 2001. The management refused union demands citing increased competition and lower margins. The central government prevailed and privatized Maruti in 2002. Suzuki became the majority owner of Maruti Udyog Limited. Manesar violence On 18 July 2012, Maruti's Manesar plant was hit by violence as workers at one of its auto factories attacked supervisors and started a fire that killed a company official and injured 100 managers, including two Japanese expatriates. The violent mob also injured nine policemen. The company's General Manager of Human Resources had both arms and legs broken by his attackers, unable to leave the building that was set ablaze, and was charred to death. The incident is the worst-ever for Suzuki since the company began operations in India in 1983. Since April 2012, the Manesar union had demanded a three-fold increase in basic salary, a monthly conveyance allowance of 10,000, a laundry allowance of 3,000, a gift with every new car launch, and a house for every worker who wants one or cheaper home loans for those who want to build their own houses.Initial reports claimed wage dispute and a union spokesman alleged the incident may be casterelated.[35][36] According to the Maruti Suzuki Workers Union a supervisor had abused and made discriminatory comments to a lowcaste worker.[37] These claims were denied by the company and the police.[33] The supervisor alleged was found to belong to a tribal heritage and outside of Hindu caste system; further, the numerous workers involved in violence were not affiliated with caste either. Maruti said the unrest began, not over wage discussions, but after the Page 22 of 28
workers' union demanded the reinstatement of a worker who had been suspended for beating a supervisor.[34] The workers claim harsh working conditions and extensive hiring of low-paid contract workers which are paid about $126 a month, about half the minimum wage of permanent employees. Maruti employees currently earn allowances in addition to their base wage. Company executives denied harsh conditions and claim they hired entry-level workers on contracts and made them permanent as they gained experience. It was also claimed that bouncers were deployed by the company.
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Amalgamation of Firms Amalgamation of Firms When two or more firms merge into one firm and makes a new firm, then this is called amalgamation of firms. For accounting point of view this definition is so important because if one firm purchases other firm, then this is not called amalgamation but if both firms decide to join or integrate then this is called amalgamation. For Example, Suppose A and B firm decide to close their business and start the business with the name of AB firm after joining with each other then this is called amalgamation of A and B firm. Steps for closing the accounts of old firm at the time of amalgamation of firms When two firm amalgamate with each other, at this time we treat following accounting in the books of old firms so that all doubt solves. 1st: Revaluation of Assets and Liabilities All entries same as at the time of admission and retirement 2nd: Transferring reserve to old partners capital account into their old ratio 3rd: Treatment of Goodwill We evaluate the goodwill according to the condition of agreement and then goodwill will open with agreed value int the books 4th: Treatment of Assets and liabilities not taken by new firm If assets and liabilities are not taken by new firm, then these item will transfer to the capital accounts of partners of old firm and we close these accounts Treatment of assets and liabilities taken by new firm In the books of old partners a For closing the account of assets New Page 24 of 28
Firms Account Debit Assets Account Credit at revalued value b For closing the accounts of liabilities Liabilities Account Debit New Firm Account Credit 6th Closing the accounts of partners capital Partner's capital account Debit New Firms Account Credit In the books of new firm Assets Account Debit Liabilities Account Credit Partner's capital Account Credit Accounting of jewellery business There is boom in jewellery business. Due to increasing the value of gold jewellery business is giving high rate of return to business man. Because of my background is related to this business so, I am writing and telling you the technique of how to make and maintain the accounts of jewellery business. It is very simple to record of jewellery business but it is very harmful to make any mistake in these type of accounts. Because 10 gram's quantity's value is approximately Rs. 10000 so be careful while doing the accounts of jewellery business. When we purchase gold, it will our raw material. So it will deal as stock, it should valued on cost. Then you should regular passing the voucher entry of purchasing of gold. In cash book if you purchase on cash, if you purchase on credit, then your duty is also to maintain the accounts of your creditors also. Because this is our current liabilities, we should know how much amount, we will have to pay to our creditors. In manual accounting, we just make journal or day book, ledger after this we should find out our profit or loss from manufacturing, trading and profit and loss account after this we also must make balance sheet. Steps for maintaining branch accounting 1 In that type of branches, it is necessary to make bank account in the name of head office so that amount got from cash sale can be deposited in head
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office bank account. 2 All miscellaneous expenses is given by head office accountant to branch accountant on impress or advance system of cash book. 3 All salaries, rent, advertising and other expenses must be paid by head office. 4 Head office can send goods to branch on cost price or invoice price. 5 It is necessary for branch to make the list of debtors if branch has all to sell the goods on credit. It is duty of branch accountant to send branch debtors list to head office weekly or monthly. 6 These branches can make memorandums in different registers. On these memorandums and registers head office can make branch account For making branch account in head office, we open each branch account in head office with given branch name. Accounting treatment of web-publishing profession If you have your own website, web blog, or any blog and you are earning more than tax limit in India. I am providing you the full tutorial of accounting treatment of web publishing profession. For this I am making income and expenditure account In vertical form which is accepted by Income tax department.
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CONCLUSION Amalgamtion can also be defined as “Amalgamation takes place when two or more comapanies combine into one company, the shareholders in the amalgamting companies becoming substantially the shareholders in the amalgamted company.” In more common way, Amalgamtion would mean the two business entities joining together to make totally new business entity or to allow one business entity to survive absorbing the other one. Amalgamation or merger is also a method of reconstruction. In amalgamation, two or more companies are fused into one by merger or by one taking over the other. When two companies are merged and are so joined as to form third company or one is absorbed into other or blended with another, the amalgamating company loses its identity. There may be amalgamation either by transfer of two or more undertakings to a new company or by the transfer of one or more undertakings to an existing company. An amalgamation may be defined as an arrangement whereby the assets of the two companies which has as its share holders all, or substantially all the share holders of the two companies A consolidation is a combination of two or more companies into a new company. In this form of merge, all the existing companies, which combine, go into a new company. In this form of merger, all the existing companies, which combine, go into liquidation and form a new company with a different entity. The entity of the existing company is lost and their assets and liabilities are taking over by the new corporation or company.
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BIBLIOGRAPHY http://www.svtuition.org/2008/12/steps-for-closing-accounts-ofold-firm.html http://www.examrace.com/StudyMaterial/Commerce/Accounting-and-Audit/Amalgamation-ofFirms.html http://www.goodreturns.in/news/2013/02/08/maruti-suzukischeme-amalgamation-159664.html en.wikipedia.org/wiki/Amalgamation www.investopedia.com/terms/a/amalgamation.asp
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