TITLE AN EXAMINING THE IMPACT OF AMALGAMATION AND ABSORPTION IN INDIA WITH THE HELP OF A CASE STUDY
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Indian Accounting Standards, (abbreviated as india AS) are a set of accounting standards notified by the Ministry of Corporate Affairs which are converged with International Financial Reporting Standards (IFRS). These accounting standards are formulated by Accounting Standards Board of Institute of Chartered Accountants of India. Now India will have two sets of accounting standards viz. existing accounting standards under Companies (Accounting Standard) Rules, 2006 and IFRS converged Indian Accounting Standards(Ind AS). The Ind AS are named and numbered in the same way as the corresponding IFRS. NACAS recommend these standards to the Ministry of Corporate Affairs. The Ministry of Corporate Affairs has to spell out the accounting standards applicable for companies in India. As on date the Ministry of Corporate Affairs notified 35 Indian Accounting Standards(Ind AS). But it has not notified the date of implementation of the same.[1]
OBJECTIVE The basic objective of Accounting Standards is to remove variations in the treatment of several accounting aspects and to bring about standardization in presentation. They intent to harmonize the diverse accounting policies followed in the preparation and presentation of financial statements by different reporting enterprises so as to facilitate intra-firm and interfirm comparison. Introduction Financial statements are prepared to summarize the end-result of all the business activities by an enterprise during an accounting period in monetary terms. These business activities vary from one enterprise to other. To compare the financial statements of various reporting enterprises poses some difficulties because of the divergence in the methods and principles adopted by these enterprises in preparing their financial statements. In order to make these methods and principles uniform and comparable to the extent possible ?standards are evolved. What are Accounting Standards? Accounting Standards are the statements of code of practice of the regulatory accounting bodies that are to be observed in the preparation and presentation of financial statements. In layman terms, accounting standards are the written documents issued by the expert institutes or other regulatory bodies covering various aspects of measurement, treatment, presentation and disclosure of accounting transactions. What are the objectives of Accounting Standards?
The basic objective of Accounting Standards is to remove variations in the treatment of several accounting aspects and to bring about standardization in presentation. They intent to harmonize the diverse accounting policies followed in the preparation and presentation of financial statements by different reporting enterprises so as to facilitate intra-firm and interfirm comparison. Who issues Accounting Standards in India? The Institute of Chartered Accountants of India (ICAI) recognizing the need to harmonize the diverse accounting policies and practices at present in use in India constituted Accounting Standards Board (ASB) on April 21, 1977. The main role of ASB is to formulate Accounting Standards from time to time. What is the duty of Statutory Auditor for Compliance with Accounting Standards? Section 211(3A) of Companies Act, 1956 provides that every profit and loss account and balance sheet of the company shall comply with the accounting standards. The statutory auditors are required to make qualification in their report in case any item is treated differently from the prescribed Accounting Standard. However, while qualifying, they should consider the materiality of the relevant item. In addition to this Section 227(3)(d) of Companies Act, 1956 requires an auditor to report whether, in his opinion, the profit and loss account and balance sheet are complied with the accounting standards referred to in Section 211(3C) of Companies Act, 1956
LIST OF ACCOUNTING STANDARDS
AS 1 Disclosure of Accounting policies" *AS 2 Valuation of Inventories *AS 3 Cash Flow Statement *AS 4 Contingencies and Events Occurring after the Balance Sheet Date *AS 5 Net Profit or Loss for the period,Prior Period Items and Changes in Accounting Policies * AS 6 Depreciation Accounting *AS 7 Construction Contracts (revised 2002)''' *AS 8 Accounting for Research and Development (AS-8 is no longer in force since it was merged with AS-26) *AS 9 Revenue Recognition *AS 10 Accounting for Fixed Assets *AS 11 The Effects of Changes in Foreign Exchange Rates (revised 2003), *AS 12 Accounting for Government Grants
*AS 13 Accounting for Investments *AS 14 Accounting for Amalgamations *AS 15 Employee Benefits (revised 2005) *AS 16 Borrowing Costs *AS 17 Segment Reporting *AS 18 Related Party Disclosures *AS 19 Leases *AS 20 Earnings Per Share *AS 21 Consolidated Financial Statements *AS 22 Accounting for Taxes on Income. *AS 23 Accounting for Investments in Associates in Consolidated Financial Statements *AS 24 Discontinuing Operations *AS 25 Interim Financial Reporting *AS 26 Intangible Assets *AS 27 Financial Reporting of Interests in Joint Ventures '*AS 28 Impairment of Assets *AS 29 Provisions,Contingent` Liabilities and Contingent Assets *AS 30 Financial Instruments: Recognition and Measurement and Limited Revisions to AS 2, AS 11 revised 2003), AS 21, AS 23, AS 26, AS 27, AS 28 and AS 29 *AS 31, Financial Instruments: Presentation *AS 32, Financial Instruments: Disclosures, and limited revision to Accounting Standard
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Applicability & Scope of the Standard Mandatory in nature for Accounting after 1-4-1995 Scope Accounting for amalgamations and the treatment of any resultant
goodwillOther PronouncementsGeneral
Clarification 4/2002 Accounting Standard Interpretation Expert Advisory Opinion periods commencing on or reserves.
Questions on Applicability & Scope of the Standard Questions Does the standard deals with cases where separate entity continues to exist ? Where the purchase of 100 % in an company is than how it is accounted under Indian GAAP? What is the Situation where an accounting treatment is prescribed by Court Order Where the financial statements which are going to be used by agencies like World Trade Organisations, Customs department, Income Tax department, etc., and the chartered accountant is asked to sign in his professional capacity, under such circumstances what accounting principles can be adopted ? Is there any choice Sources: Paras 1, 2, of AS 14 and GC 4/2004, Industry Practice for Court together with explanatory Notes) acquired company is not dissolved and not covered by the this standard
Signification Definitions Amalgamations Amalgamation means an amalgamation Act, 1956 or any other statute which may
Consideration Consideration for the amalgamation means the aggregate of the shares and other securities issued and the payment made in the form of cash or other assets by the transferee company to the shareholders of the transferor company. Question: Are merger expenses to be treated as part of Consideration ?
Fair Value Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm's length transaction. Question: Is there any more Guidance available for determining Fair Values
pursuant to the provisions of the Companies be applicable to companies. Values? .
Classification of Merger
Para 28. An amalgamation may be either a) an amalgamation in the nature of merger, b) an amalgamation in the nature of purchase Comments: There is no third way envisaged in the Classification is important as in case carrying amounts of assets acquired carrying amounts The world over the accounting in the – or purchase. standard of amalgamation in the nature merger and liabilities assumed are carried at nature of merger is on verge of extinction the assets and liabilities of the transferor assets and liabilities of the transferee company Shareholders holding not less than 90% transferor company (other than the equity before the amalgamation, by the transferee nominees) become equity shareholders of amalgamation.
The consideration for the amalgamation transferor company who agree to become company is discharged by the transferee shares in the transferee company, except fractional shares. The business of the transferor company amalgamation, by the transferee company adjustment is intended to be made to the transferor company when they are transferee company except to ensure uniformity company become, after amalgamation, company. of the face value of the equity shares shares already held therein, immediately company or its subsidiaries or the transferee company by virtue receivable by those equity shareholders equity shareholders of the transferee company wholly by the issue of that cash may be paid in respect is intended to be carried on, after company. the book values of the assets and liabilities incorporated in the financial statements of accounting policies.Where more than 10 % of share holder have not agreed to accept the shares of acquiring company but settles for cash to be distributed by amalgamating company, requirement for amalgamation in the nature of purchase merger defeated ?
Where more than 10 % of share holder have not agreed to accept the shares of acquiring company but the acquiring company directly acquires the shares by payment of cash before the initiation of merger, whether the requirement for amalgamation in the nature of purchase merger defeated ? Where the shareholders of the two companies Case 1: Equity Shares of new company + Cash Case 2: Equity Shares of new company where equivalent cash) just before merger,
Whether the amalgamation is in nature of hidden assets brought to books e.g. brands agrees to merge into a new company for; both the companies have declared dividend
purchase or merger
Accounting is done on the basis of “Pooling of Interest Method” Para 33. In preparing the transferee company's reserves (whether capital or revenue or arising should be recorded at their existing carrying amalgamation. The balance of the Profit should be aggregated with the corresponding the General Reserve, if any. Para 34. If, at the time of the amalgamation, conflicting accounting policies, a uniform following the amalgamation. The effects on accounting policies should be reported in accordance Period and Extraordinary Items and Changes in Para 35. The difference between the amount recorded as share capital issued (plus any
additional consideration in the form of cash or other assets) and the amount of share capital transferor company should be adjusted in reserves financial statements, the assets, liabilities on revaluation) of the transferor company amounts and in the same form as at the and Loss Account of the transferor company balance of the transferee company or transferred the transferor and the transferee companies set of accounting policies should be the financial statements of any changes with Accounting Standard (AS) Accounting Policies'. reserves.
CommentComments discretion of accounting treatment is only hands of the transferor company which can be reserves Cumulative catch-up adjustments are required policies. The impact of changes is shown in change is made. Where the effect of change should be indicated.
Question Give list of hidden assets and liabilities that nature of merger ? Sample List Leasehold land at nominal values, Licenses/ lease contract, Databases of say legal.com / Discovery of Molecule by Pharmaceuticals of Closure of Duplicate facilities, Contingent available in case of Profit or loss balance either carried forward or adjusted with
under AS 5 for changes in accounting the financial statements of the period in is not ascertainable, wholly or in part, may not be accounted for amalgamation FDA approvals, Brands Favorable/unfavorable Distribution list of credit cards company, companies, Employee Termination cost/ liabilities intended to be settled, etc Accounting is done on the basis of “Purchase Method” Para 36. In preparing the transferee assets and liabilities of the incorporated at their existing carrying consideration should be allocated and liabilities on the basis of amalgamation. The reserves (whether revaluation) of the transferor company,reserves, should not be included transferee company except as stated company's financial statements, transferor company should amounts or, alternatively to individual identifiable assets their fair values at the date capital or revenue or arising other than the statutory in the financial statements of in paragraph 39.
on Para 36 of AS 14 the alternative treatment fully discretionary or are these subject to further conditions ?Where the company adopts the alternative treatment wherein the acquirer incorporate assets and liability at existing carrying amounts, whether it is anyway different from polling of interest method ? When does the Amalgamation Adjustments Miscellaneous Expenditure loses it identity ?What are the sources of guidance for fair value International Accounting Standard 22 (IFRS), and Financial Accounting Standard 141 (US Raw
Material
Finished
Goods Brands and Intangible: Fixed Asset Miscellaneous Expenditure VRS/termination Duplicate Facility Contingencies Monetary Asset/liability
Accounts which is carried forward under measurements ?. Financial Reporting Standard 6 (UK GAAP) Replacement Cost NRV less reasonable profit Present value of Net Income Market Value Nil Value Committed Plan Various Criteria Fair Values Net Present Value
Accounting Consequence of Amalgamation in the Nature of Purchase (Contd.) Para 37. Any excess of the amount of the consideration over the value of assets of the transferor company acquired by the transferee company should be recognised in the transferee company's financial statements as goodwill arising on amalgamation. If the amount of the consideration is lower than the value of the net
assets acquired, the difference should be treated Capital Reserve.
Questions Where the consideration is allocated to individual likely to result into any goodwill or capital reserve Where the consideration is by way of issue recorded at its nominal value ? How contingent consideration are accounted ? . assets or liability on the basis of fair value of shares, whether the said consideration
Para 38. The goodwill arising on amalgamation systematic basis over its useful life. The years unless a somewhat longer period can Comments Under the new standard AS 28, „Impairment assets is also subject to test of impairment Goodwill cannot be amortized but is only Negative goodwill is first reduced from non any is treated as extraordinary gains under US GAAP and IFRS.
should be amortized to income amortization period should not exceed be justified. of Asset‟ Goodwill together with impairment. tested for impairment under FAS 142. non-monetary-non-current asset and balance Para 43. For all amalgamations, the following statements following the amalgamation:names and general nature of business of the amalgamating effective date of amalgamation for accounting the method of accounting used to reflect the amalgamation
particulars of the scheme sanctioned under a statute
Para 44 Additional disclosure for amalgamations method, (a) description and number of shares issued, together shares exchanged to effect the amalgamation; (b) the amount of any difference between the acquired, and the treatment thereof.
Para 45 Additional disclosure for amalgamations consideration for the amalgamation and a description payable; and b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof including the period of amortisation of any goodwill arising amalgamation.
disclosures should be made in the first financial companies; purposes; amalgamation; and statute.
accounted under pooling of interests with the percentage of each company's consideration and the value of net identifiable
accounted under purchase method, : of the consideration paid or contingently
Discussion on Pronouncements: GAAP
Other Indian
General Clarification 4/2002 Recommended Deals with disclosure of treatment of reserves and reasons thereof
Accounting Standard Interpretation 11 Deals with recognition of Deferred Tax Asset
Criteria
for recognition from Acquirer’s point of view to be considered Permanent Difference Where recognized within fist annual balance date than impact to reserves /goodwill or capital as the case may be Where recognized after the first annual balance sheet date than to be routed through profit and account.
Expert Advisory Opinion (Feb 04) Reserves on Amalgamation in case of Pooling of Interest shall not be considered as reserves.
Corporate Examples Included in Your Notes Crompton Greaves Limited Advani Oeriikin Finolex Cables Limited
General Observation Generally, the Companies discloses Accounting Policy and an explanatory notes of fact As the particulars of scheme are described in very BRIEF probably as these are described elsewhere like website, notice, directors report, etc. The fact of accounting as per Court Order Majority of the Companies have Accounting Merger Using Pooling of Interest Method Figures are not Comparable Stamp Duty Note Assets in the Process of Being Transferred Retrospective effect as per Court Order Court Order is Awaited and hence no effect - Knoll Pharma Limited - BPL Limited - Nicholas Piramal for accounting of Amalgamation is brought Out
Checklist …..in your Notes
Checklist for Compliance Standard 14: Accounting for Amalgamation
With
Accounting
No. Compliance Test for AS 14 (To be tailor made for each client) Whether due care is taken to asses whether standard is applicable or not ? Refer Para 1 & 2. Where the amalgamation is in the Nature of merger whether the recording of assets, liabilities and other account balances is made at carrying amounts on the date of amalgamation ? Refer Para 33 to 35 of AS 14 and section F in a Responded by ___________ Dated________ Reviewed by ___________ Dated________ Y/ N/ N.A. Work Paper Ref. above.
Comparison with IAS & US GAAP Framework Indian GAAP : AS 14 and Other Proucements, US GAAP: : FAS 141 UK GAAP : FRS 6 IFRS : IAS 22
Applicability : Narrow in India Accounting Method : Acquisition V/S Merger Allocation of Consideration : Only in Indian GAAP Effective Date : Accounting Rules v/s Court Order Subsequent Impact : Arbitrary Amortisation V/S Test of Impairment
– Up Best Practices for Your Client Consider the adoption of Non-Mandatory Accounting Standard or other pronouncements Consider the practices adopted by highly absence/ non-clarity of authoritative other GAAP US GAAP Financial Accounting IFRS International Accounting UK GAAP Financial Reporting
disclosures stated in e.g. GC 4/2002 regarded corporate entities. guidance refer to practices adopted Standard (FAS ) 141/i41( R) , Standard (IAS) 22, IFRS 3, IFRS Standard (FRS) 6
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Amalgamation In general, amalgamation is the process of combining or uniting multiple entities into one form. Amalgamate and its derivatives may refer to: Metals and science In mining, amalgamation was historically used in the patio process and pan amalgamation to recover precious metals from ore by combining them with mercury. Amalgamation combines mercury and another element to create amalgam (chemistry), used in dentistry, chemistry, and mining In geology it refers to the creation of a stable continent or craton by the union of two continents, blocks or terranes
Accounting Standard (AS) 14 Accounting for Amalgamations
Introduction 1. This standard deals with accounting for amalgamations and the treatment of any resultant goodwill or reserves. This standard is directed principally to companies although some of its requirements also apply to financial statements of other enterprises. 2. This standard does not deal with cases of acquisitions which arise when there is a purchase by one company (referred to as the acquiring company) of the whole or part of the shares, or the whole or part of the assets, of another company (referred to as the acquired company) in consideration for payment in cash or by issue of shares or other securities in the acquiring company or partly in one form and partly in the other. The distinguishing feature of an acquisition is that the acquired company is not dissolved and its separate entity continues to exist.
Definitions The following terms are used in this standard with the meanings specified: (a) Amalgamation means an amalgamation pursuant to the provisions of the Companies Act, 1956 or any other statute which may be applicable to companies. (b) Transferor company means the company which is amalgamated into another company. Accounting for Amalgamations 147 (c) Transferee company means the company into which a transferor company is amalgamated. (d) Reserve means the portion of earnings, receipts or other surplus of an enterprise (whether capital or revenue) appropriated by the management for a general or a specific purpose other than a provision for depreciation or diminution in the value of assets or for a known liability. (e) Amalgamation in the nature of merger is an amalgamation which satisfies all the following conditions. (i) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company. (ii) Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity
shareholders of the transferee company by virtue of the amalgamation. (iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become 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. (iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company. (v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies. 148 AS 14 (f) Amalgamation in the nature of purchase is an amalgamation which does not satisfy any one or more of the conditions specified in sub-paragraph (e) above. (g) Consideration for the amalgamation means the aggregate of the shares and other securities issued and the payment made in the form of cash or other assets by the transferee company to the shareholders of the transferor company. (h) Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm‟s length transaction.
(i) Pooling of interests is a method of accounting for amalgamations the object of which is to account for the amalgamation as if the separate businesses of the amalgamating companies were intended to be continued by the transferee company. Accordingly, only minimal changes are made in aggregating the individual financial statements of the amalgamating companies. Explanation Types of Amalgamations 4. Generally speaking, amalgamations fall into two broad categories. In the first category are those amalgamations where there is a genuine pooling not merely of the assets and liabilities of the amalgamating companies but also of the shareholders‟ interests and of the businesses of these companies. Such amalgamations are amalgamations which are in the nature of „merger‟ and the accounting treatment of such amalgamations should ensure that the resultant figures of assets, liabilities, capital and reserves more or less represent the sum of the relevant figures of the amalgamating companies. In the second category are those amalgamations 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 amalgamations in 5. An amalgamation is classified as an „amalgamation in the nature of Accounting for Amalgamations 149 merger‟ when all the conditions listed in paragraph 3(e) are satisfied. There are, however, differing views regarding the nature of any further conditions that may apply. Some believe that, in addition to an exchange of equity shares, it is necessary that the shareholders of the transferor company obtain a substantial share in the transferee company even to the extent that it should not be possible to identify any one party as dominant therein. This belief is based in part on the view that the exchange of control of one company for an insignificant share in a larger company does not amount to a mutual sharing of risks and benefits. 6. Others believe that the substance of an amalgamation in the nature of
merger is evidenced by meeting certain criteria regarding the relationship of the parties, such as the former independence of the amalgamating companies, the manner of their amalgamation, the absence of planned transactions that would undermine the effect of the amalgamation, and the continuing participation by the management of the transferor company in the management of the transferee company after the amalgamation. Methods of Accounting for Amalgamations 7. There are two main methods of accounting for amalgamations: (a) the pooling of interests method; and (b) the purchase method. 8. The use of the pooling of interests method is confined to circumstances which meet the criteria referred to in paragraph 3(e) for an amalgamation in the nature of merger. 9. The object of the purchase method is to account for the amalgamation by applying the same principles as are applied in the normal purchase of assets. This method is used in accounting for amalgamations in the nature of purchase. The Pooling of Interests Method
10. Under the pooling of interests method, the assets, liabilities and reserves of the transferor company are recorded by the transferee company at their existing carrying amounts (after making the adjustments required in paragraph 11). 150 AS 14 11. If, at the time of the amalgamation, the transferor and the transferee companies have conflicting accounting policies, a uniform set of accounting policies is adopted following the amalgamation. The effects on the financial statements of any changes in accounting policies are reported in accordance with Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies. The Purchase Method 12. Under the purchase method, the transferee company accounts for the amalgamation either by incorporating the assets and liabilities at their existing carrying amounts or by allocating the consideration to individual identifiable assets and liabilities of the transferor company on the basis of their fair values at the date of amalgamation. The identifiable assets and liabilities may include assets and liabilities not recorded in the financial statements of the transferor company.
13. Where assets and liabilities are restated on the basis of their fair values, the determination of fair values may be influenced by the intentions of the transferee company. For example, the transferee company may have a specialised use for an asset, which is not available to other potential buyers. The transferee company may intend to effect changes in the activities of the transferor company which necessitate the creation of specific provisions for the expected costs, e.g. planned employee termination and plant relocation costs.
Consideration
14. The consideration for the amalgamation may consist of securities,cash or other assets. In determining the value of the consideration, an assessment is made of the fair value of its elements. A variety of techniques is applied in arriving at fair value. For example, when the considerationincludes securities, the value fixed by the statutory authorities may be takento be the fair value. In case of other assets, the fair value may be determinedby reference to the market value of the assets given up. Where the market value of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book values.
15. Many amalgamations recognise that adjustments may have to be made to the consideration in the light of one or more future events. When the additional payment is probable and can reasonably be estimated at the date Accounting for Amalgamations 151 of amalgamation, it is included in the calculation of the consideration. In all other cases, the adjustment is recognised as soon as the amount is determinable [see Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date]. Treatment of Reserves on Amalgamation 16. If the amalgamation is an „amalgamation in the nature of merger‟, the identity of the reserves is preserved and they appear in the financial statements of the transferee company in the same form in which they appeared in the financial statements of the transferor company. Thus, for example, the General Reserve of the transferor company becomes the General Reserve of the transferee company, the Capital Reserve of the transferor company becomes the Capital Reserve of the transferee company and the Revaluation Reserve of the transferor company becomes the Revaluation Reserve of the transferee company. As a result of preserving the identity, reserves which are available for distribution as dividend before the amalgamation would also be available for distribution as dividend after the amalgamation. The difference between the amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) and the amount of share capital of the transferor company is adjusted
17. If the amalgamation is an „amalgamation in the nature of purchase‟, the identity of the reserves, other than the statutory reserves dealt with in paragraph 18, is not preserved. The amount of the consideration is deducted from the value of the net assets of the transferor company acquired by the transferee company. If the result of the computation is negative, the difference is debited to goodwill arising on amalgamation and dealt with in the manner stated in paragraphs 19-20. If the result of the computation is positive, the difference is credited to Capital Reserve. 18. Certain reserves may have been created by the transferor company pursuant to the requirements of, or to avail of the benefits under, the Income-tax Act, 1961; for example, Development Allowance Reserve, or Investment Allowance Reserve. The Act requires that the identity of the reserves should be preserved for a specified period. Likewise, certain other reserves may have been created in the financial statements of the transferor company in terms of the requirements of other statutes. Though, normally, in an amalgamation in the nature of purchase, the identity of reserves is not preserved, an exception is made in respect of reserves of the aforesaid 152 AS 14 nature (referred to hereinafter as „statutory reserves‟) and such reserves retain their identity in the financial statements of the transferee company in the same form in which they appeared in the financial statements of the transferor company, so long as their identity is required to be maintained to comply with the relevant statute. This exception is made only in those amalgamations where the requirements of the relevant statute for recording the statutory reserves in the books of the transferee company are complied
with. In such cases the statutory reserves are recorded in the financial statements of the transferee company by a corresponding debit to a suitable account head (e.g., „Amalgamation Adjustment Account‟) which is disclosed as a part of „miscellaneous expenditure‟ or other similar category in the balance sheet. When the identity of the statutory reserves is no longer required to be maintained, both the reserves and the aforesaid account are reversed. Treatment of Goodwill Arising on Amalgamation 19. Goodwill arising on amalgamation represents a payment made in anticipation of future income and it is appropriate to treat it as an asset to be amortised to income on a systematic basis over its useful life. Due to the nature of goodwill, it is frequently difficult to estimate its useful life with reasonable certainty. Such estimation is, therefore, made on a prudent basis. Accordingly, it is considered appropriate to amortise goodwill over a period not exceeding five years unless a somewhat longer period can be justified. 20. Factors which may be considered in estimating the useful life of goodwill arising on amalgamation include: (a) the foreseeable life of the business or industry; (b) the effects of product obsolescence, changes in demand and other economic factors;
(c) the service life expectancies of key individuals or groups of employees; (d) expected actions by competitors or potential competitors; and (e) legal, regulatory or contractual provisions affecting the useful life. Accounting for Amalgamations 153 Balance of Profit and Loss Account 21. In the case of an „amalgamation in the nature of merger‟, the balance of the Profit and Loss Account appearing in the financial statements of the transferor company is aggregated with the corresponding balance appearing in the financial statements of the transferee company. Alternatively, it is transferred to the General Reserve, if any. 22. In the case of an „amalgamation in the nature of purchase‟, the balance of the Profit and Loss Account appearing in the financial statements of the transferor company, whether debit or credit, loses its identity. Treatment of Reserves Specified in A Scheme of Amalgamation 23. The scheme of amalgamation sanctioned under the provisions of the Companies Act, 1956 or any other statute may prescribe the treatment to be
given to the reserves of the transferor company after its amalgamation. Where the treatment is so prescribed, the same is followed. In some cases, the scheme of amalgamation sanctioned under a statute may prescribe a different treatment to be given to the reserves of the transferor company after amalgamation as compared to the requirements of this Standard that would have been followed had no treatment been prescribed by the scheme. In such cases, the following disclosures are made in the first financial statements following the amalgamation: (a) A description of the accounting treatment given to the reserves and the reasons for following the treatment different from that prescribed in this Standard. (b) Deviations in the accounting treatment given to the reserves as prescribed by the scheme of amalgamation sanctioned under the statute as compared to the requirements of this Standard that would have been followed had no treatment been prescribed by the scheme. (c) The financial effect, if any, arising due to such deviation. Disclosure 24. For all amalgamations, the following disclosures are considered
appropriate in the first financial statements following the amalgamation: 154 AS 14 (a) names and general nature of business of the amalgamating companies; (b) effective date of amalgamation for accounting purposes; (c) the method of accounting used to reflect the amalgamation; and (d) particulars of the scheme sanctioned under a statute. 25. For amalgamations accounted for under the pooling of interests method, the following additional disclosures are considered appropriate in the first financial statements following the amalgamation: (a) description and number of shares issued, together with the percentage of each company‟s equity shares exchanged to effect the amalgamation; (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof. 26. For amalgamations accounted for under the purchase method, the following additional disclosures are considered appropriate in the first financial statements following the amalgamation: (a) consideration for the amalgamation and a description of the consideration paid or contingently payable; and (b) the amount of any difference between the consideration and the
value of net identifiable assets acquired, and the treatment thereof including the period of amortisation of any goodwill arising on amalgamation. Amalgamation after the Balance Sheet Date 27. When an amalgamation is effected after the balance sheet date but before the issuance of the financial statements of either party to the amalgamation, disclosure is made in accordance with AS 4, „Contingencies and Events Occurring After the Balance Sheet Date‟, but the amalgamation is not incorporated in the financial statements. In certain circumstances, the amalgamation may also provide additional information affecting the financial statements themselves, for instance, by allowing the going concern assumption to be maintained. Accounting for Amalgamations 155 Main Principles 28. An amalgamation may be either – (a) an amalgamation in the nature of merger, or (b) an amalgamation in the nature of purchase. 29. An amalgamation should be considered to be an amalgamation in the nature of merger when all the following conditions are satisfied:
(i) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company. (ii) Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation. (iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become 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. (iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company. (v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies. 30. An amalgamation should be considered to be an amalgamation in the nature of purchase, when any one or more of the conditions specified in paragraph 29 is not satisfied. 156 AS 14
31. When an amalgamation is considered to be an amalgamation in the nature of merger, it should be accounted for under the pooling of interests method described in paragraphs 33–35. 32. When an amalgamation is considered to be an amalgamation in the nature of purchase, it should be accounted for under the purchase method described in paragraphs 36–39. The Pooling of Interests Method 33. In preparing the transferee company‟s financial statements, the assets, liabilities and reserves (whether capital or revenue or arising on revaluation) of the transferor company should be recorded at their existing carrying amounts and in the same form as at the date of the amalgamation. The balance of the Profit and Loss Account of the transferor company should be aggregated with the corresponding balance of the transferee company or transferred to the General Reserve, if any. 34. If, at the time of the amalgamation, the transferor and the transferee companies have conflicting accounting policies, a uniform set of accounting policies should be adopted following the amalgamation. The effects on the financial statements of any changes in accounting policies should be reported in accordance with Accounting
Standard (AS) 5 Net Profit or Loss for the Period, Prior Period Items and Changes in 35. The difference between the amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) and the amount of share capital of the transferor company should be adjusted in reserves. The Purchase Method 36. In preparing the transferee company‟s financial statements, the assets and liabilities of the transferor company should be incorporated at their existing carrying amounts or, alternatively, the consideration should be allocated to individual identifiable assets and liabilities on the basis of their fair values at the date of amalgamation. The reserves (whether capital or revenue or arising on revaluation) of the transferor company, other than the statutory reserves, should not be included in the financial statements of the Accounting for Amalgamations 157 37. Any excess of the amount of the consideration over the value of the net assets of the transferor company acquired by the transferee company
should be recognised in the transferee company‟s financial statements as goodwill arising on amalgamation. If the amount of the consideration is lower than the value of the net assets acquired, the difference should be treated as Capital Reserve. 38. The goodwill arising on amalgamation should be amortised to income on a systematic basis over its useful life. The amortisation period should not exceed five years unless a somewhat longer period can be justified. 39. Where the requirements of the relevant statute for recording the statutory reserves in the books of the transferee company are complied with, statutory reserves of the transferor company should be recorded in the financial statements of the transferee company. The corresponding debit should be given to a suitable account head (e.g., „Amalgamation Adjustment Account‟) which should be disclosed as a part of „miscellaneous expenditure‟ or other similar category in the balance sheet. When the identity of the statutory reserves is no longer required to be maintained, both the reserves and the aforesaid account should be reversed. Common Procedures
40. The consideration for the amalgamation should include any noncash element at fair value. In case of issue of securities, the value fixed by the statutory authorities may be taken to be the fair value. In case of other assets, the fair value may be determined by reference to the market value of the assets given up. Where the market value of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book values. 41. Where the scheme of amalgamation provides for an adjustment to the consideration contingent on one or more future events, the amount of the additional payment should be included in the consideration if payment is probable and a reasonable estimate of the amount can be made. In all other cases, the adjustment should be recognised as soon as the amount is determinable [see Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date]. 158 AS 14 Treatment of Reserves Specified in A Scheme of Amalgamation 42. Where the scheme of amalgamation sanctioned under a statute
prescribes the treatment to be given to the reserves of the transferor company after amalgamation, the same should be followed. Where the scheme of amalgamation sanctioned under a statute prescribes a different treatment to be given to the reserves of the transferor company after amalgamation as compared to the requirements of this Standard that would have been followed had no treatment been prescribed by the scheme, the following disclosures should be made in the first financial statements following the amalgamation: (a) A description of the accounting treatment given to the reserves and the reasons for following the treatment different from that prescribed in this Standard. (b) Deviations in the accounting treatment given to the reserves as prescribed by the scheme of amalgamation sanctioned under the statute as compared to the requirements of this Standard that would have been followed had no treatment been prescribed by the scheme. (c) The financial effect, if any, arising due to such deviation. Disclosure 43. For all amalgamations, the following disclosures should be made in the first financial statements following the amalgamation: (a) names and general nature of business of the amalgamating
companies; (b) effective date of amalgamation for accounting purposes; (c) the method of accounting used to reflect the amalgamation; and (d) particulars of the scheme sanctioned under a statute. 44. 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: Accounting for Amalgamations 159 (a) description and number of shares issued, together with the percentage of each company‟s equity shares exchanged to effect the amalgamation; (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof. 45. For amalgamations accounted for under the purchase method, the following additional disclosures should be made in the first financial statements following the amalgamation: (a) consideration for the amalgamation and a description of the consideration paid or contingently payable; and (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof including the period of amortisation of any goodwill arising on amalgamation. Amalgamation after the Balance Sheet Date
46. When an amalgamation is effected after the balance sheet date but before the issuance of the financial statements of either party to the amalgamation, disclosure should be made in accordance with AS 4, „Contingencies and Events Occurring After the Balance Sheet Date‟, but the amalgamation should not be incorporated in the financial statements. In certain circumstances, the amalgamation may also provide additional information affecting the financial statements
Reasons for merger/amalgamation
There is not one single reason for a merger but a multitude of reasons, namely (i) Synergy in operating economies: When two or more undertakings combine their resources and efforts they may with combined efforts produce better results than two separate undertakings because of the savings in operating costs viz. Combined sales offices, staff, staff facilities, plant management etc. Synergy is also possible in areas of production, finance, technology etc. (ii) Taxation advantages: Mergers take place to have benefits of tax laws and company having accumulated losses may merge with profit earning company that will shield the income from taxation. Section 72A of the Income Tax Act provides this incentive. (iii) Other advantages: • Growth • Diversification • Production capacity reduction • Operating efficiencies • Procurement of supplies • Financial Strength (because of larger size of merged assets) One significant cost disadvantage could be the implication of Stamp Duty which is applicable on transfer of assets from one owner to another. In some states the rate of duty is significant and hence may to some extent neutrilise the cost advantage of savings in tax 1.2 Evolution in India
Compelled by the present economic scenario and market trends, corporate restructuring through mergers, amalgamations, takeovers and acquisitions, has emerged as the best form of survival and growth. The opening up of the Indian economy and the government's decision to disinvest, has made corporate restructuring more relevant today. In the last few years, India has followed the worldwide trends in consolidation amongst companies through mergers and acquisitions. Companies are being taken over, units are being hived off, joint ventures tantamount to acquisitions are being made and so on. It may be reasonably be stated that the quantum of mergers and acquisitions in the last few years must be more than the corresponding quantum in the four and a half decades post independence. Supreme Court of India in the landmark judgement of HLLTOMCO merger has said that "in this era of hypercompetitive capitalism and technological change, industrialists have realised that mergers/acquisitions are perhaps the best route to reach a size comparable to global companies so as to effectively compete with them. The harsh reality of globalisation has dawned that companies which cannot compete globally must sell out as an inevitable alternative". 2. SCOPE AND OBJECTIVE OF THIS ARTICLE The objective and scope of this article is to make an overview of the procedural aspects under
the Indian Companies Act, 1956 of effecting mergers and the corresponding Income Tax implications arising therein. An attempt has been made to state the regulatory framework in as simple language as possible. 3. PROCEDURE UNDER THE COMPANIES ACT, 1956 (i) Scheme of Amalgamation/Merger: The Scheme of amalgamation/merger should be prepared by the companies which have arrived at a consensus to merge. (ii) Approval of Board of Directors for the scheme: Respective Board of Directors of transferor and transferee companies are required to approve the scheme of amalgamation/ merger. (iii) Approval of the scheme by financial institutions banks/trustees for debenture holders: The Board of Directors should in-fact approve the scheme only after it has been cleared by the financial institutions/banks which have granted loans to these companies or the debenture trustees to void any major change in the meeting of creditors to the convened at the instance of the company courts under section 391 of the Companies Act, 1956. (iv) Intimation to stock exchange about proposed amalgamation/ merger: Listing agreements entered into between company and stock exchange require the company to communicate price-sensitive information to the stock exchange immediately and simultaneously when released to press and other electronic media on conclusion of Board
meeting according approval to the scheme (v) Application to Court for directions: The next step is to make an application under section 391(1) of the Companies Act to the High Court having jurisdiction over the Registered office of the company, for an order calling a meeting of its members. The transferor company and the transferee company should make separate applications to the High Court. (vi) High Court directions for members' meeting: Upon the hearing of the summons, the High Court shall give directions fixing the date, time and venue and quorum for the members' meeting and appoint and Advocate Chairman to preside over the meeting and submit a report to the Court. (vii) Approval of Registrar of High Court to notice for calling the meeting of members: Pursuant to the directions of the court, the transferor as well as the transferee companies shall submit for approval to the Registrar of the respective High Courts the draft notices calling the meetings of the members together with a scheme of arrangements and explanations, statement under section 393 of the Companies Act and form of proxy to be sent to members alongwith the said notice (viii) Despatch of notices to members/shareholders: Once the notice has been signed by the chairman of the forthcoming meeting as aforesaid it could be despatched to the members under certificate of posting at least 21 days before the date of the meeting.
(ix) Advertisement of the notice of member meeting: The court may direct the issuance of notice of the meeting of these shareholders by advertisement. (x) Confirmation about service of the notice: Ensure that at lease one week before the date for the meeting the Chairman appointed for the meetings files an Affidavit to the court about the service of notices to the shareholders that the directions regarding the issue of notices and advertisement have been duly compiled with. (xi) Holding the shareholders general meeting and passing the resolutions: The general meeting should be held on the appointed date. The amalgamation/merger scheme should be approved by the members by a majority in number of members present in person or on proxy and voting o the resolution and this majority must represent at least 3/4ths in value of the shares held by the members who vote in the poll. (xii) Filing of resolutions of general meetings with Registrar of Companies: Once the shareholders' general meetings approves the amalgamation/merger scheme by a majority in number of members holding not less that 3/4ths in value of the equity shares, the scheme is binding on all the members of the company. A copy of the resolution passed by the shareholders approving the scheme of amalgamation/ merger should be filed with the Registrar of Companies within 30 days from the date of passing the resolution. (xiii) Submission of report of the chairman of the general meeting to court: The
chairman of the general meeting of shareholders is required to submit to the Court within 7 days from the date of the meetings a report setting out therein the number of persons who attend either personally or by proxy, and the percentage of shareholders who voted in favour of the scheme as well as the resolution passed by the meeting. (xiv) Submission of joint petition to court for sanctioning the scheme: Within 7 days from date on which the chairman has submitted his report about the result of the meeting to the court, both the companies should make a joint petition to the High Court for approving the scheme of amalgamation/ merger. (xv) Issue of notice to Regional Director's Company Law Board under section 394A: On receipt of the petition for amalgamation/ merger under section 391 the court will give notice of the petition to the Regional Director, Company Law Board and will take into consideration the representations, if any, made by him (xvi) Hearing of petition and confirmation of scheme: Having taken up the petition by the Court for hearing it will hear the objections first and if there is no objection to the amalgamation/merger scheme from Regional Director or from any other person who is entitled to oppose the scheme, the Court may pass an order approving the scheme of amalgamation/merger. (xvii) Filing of Courts order with ROC by both the Companies: Both the transferor and
transferee companies should obtain the Court's order sanctioning the scheme of amalgamation/ merger and file the same with ROC with their respective jurisdiction as required vide section 394(3) of the within 30 days after the date of the Courts order. (xviii) Dissolution of transferor company: Section 394(1)(iv) vests powers in the High Court, either by order sanctioning the scheme or by a subsequent order of dissolution, without winding up, of any transferor company provided the official liquidation has, on scrutiny of the books and papers of the company, made a report to the Court that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest. (xix) Transfer of assets and liabilities: Section 394(2) vests power in the High Court to order for the transfer of any property or liabilities from transferor company to transferee company (xx) Allotment of shares to shareholders of transferor company: Pursuant to the sanctioned scheme of amalgamation/ merger, the shareholders of the transferor company are entitled to get shares in the transferee company in the exchange ratio provided under the said scheme. (xxi) Listing of shares at stock exchange: After the amalgamation/merger is effected, the company which takes over the assets and liabilities of the transferor company should apply to
the Stock Exchanges where its securities are listed, for listing the new shares allotted to the shareholders of the transferor company. (xxii) Court order to be annexed to memorandum of transferee company: It is the mandatory requirement vide section 391(4) that after the certified copy of the Court's order sanctioning the scheme of amalgamation/ merger is filed with the Registrar, it should be annexed to every copy of the Memorandum issued by the transferee company. (xxiii) Preservation of books and papers of amalgamated company: Section 396A of the Act requires that the books and papers of the amalgamated company should be preserved and not be disposed of without prior permission of the Central Government. (xxiv) Post merger secretarial obligation: There are various formalities to be compiled with after amalgamation of the companies is given effect to and allotment of shares to the shareholders of the transferor company is over. These formalities include filing of returns with Registrar of Companies, transfer of investments of transferor company in the name of the transferee, intimating banks and financial institutions, creditors and debtors about the transfer of the transferor company's assets and liabilities in the name of the transferee company.
4. IMPLICATIONS UNDER THE INCOME TAX ACT, 1961 4.1 Definition of amalgamation According to section 2(1B) of the Income-tax Act, 1961 (hereinafter referred to as the Act), amalgamation in relation to companies means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that 1. All the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of amalgamation 2. All the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of amalgamation 3. Shareholders holding not less than 3/4th in value of the shares in amalgamating company or companies (other than shares held therein immediately before the amalgamation or by a nominee for the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation,
otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of distribution of such property to the other company after the winding up of first mentioned company. 4.2 Tax Concessions If any amalgamation takes place within the meaning of section 2(1B) of the Act, the following tax concession shall be available 1. Tax concession to amalgamating company 2. Tax concession to shareholders of the amalgamating company 3. Tax concession to amalgamated company (i) Tax Concession to Amalgamating company: Capital Gains tax not attracted : According to section 47(vi) where there is a transfer of any capital asset in the scheme of amalgamation, by an amalgamating company to the amalgamated company, such transfer will not be regarded as a transfer for the purpose of capital gain provided the amalgamated company, to whom such assets have been transferred, is an Indian company (ii) Tax concessions to the shareholders of an amalgamating company section 47(vii): Where as shareholder of an amalgamating company transfers his shares, in a scheme or amalgamation, such transaction will not be regards as a transfer for capital gain purposes, if following conditions are satisfied
• The transfer of shares is made in consideration of the allotment to him of any share or shares in the amalgamated company and • The amalgamated company is an Indian company Cost of acquisition such shares of the amalgamated company are later on transferred The cost of acquisition of such shares of the amalgamated company shall be the cost or acquisition of the shares in the amalgamating company. Further, for computing the period of holding of such shares, the period for which such shares were held in the amalgamating company shall also be included (iii) Tax concessions to the amalgamated company: The amalgamated company shall be eligible for tax concessions only if the following two conditions are satisfied • The amalgamation satisfies all the three conditions laid down in section 2(1B) and • The amalgamated company is an Indian company If the above conditions are satisfied the amalgamated company shall be eligible for following tax concessions (a) Expenditure on Scientific Research Section 35(5): Where an amalgamating company transfers any asset represented by capital expenditure on the scientific research to the amalgamated Indian company in a scheme of amalgamation, the provisions of section 35 which were applicable to the amalgamating company shall become applicable to the amalgamated company consequently
• Unabsorbed capital expenditure on scientific research of the amalgamating company will be allowed to be carried forward and set off in the hands of the amalgamated company • If such asset ceases to be used in a previous year for scientific research related to the business of amalgamated company and is sold by the amalgamated company without having being used for other purposes, the sales price, to the extent of the cost of the asset shall be treated as business income other amalgamated company. The excess of the sale price over the cost of the asset shall be subject to the provisions of the capital gains (b) Expenditure on acquisition of patent rights or copy rights Section 35A(6): Where the patent or copyrights acquired by the amalgamating company is transferred to any amalgamated Indian company, the provisions of section 35A which were applicable to the amalgamating company shall become applicable in the same manner to the amalgamated company consequently • The expenditure on patents copyrights not yet written off shall be allowed to the amalgamated company in the same number or balance instalments • Where such rights are later on sold by the amalgamated company, the treatment of the deficiency/surplus will be same as would have been in the case of the
amalgamating company However, if such expenditure is incurred by the amalgamting company after 31-3-1998, deduction under section 35A is not allowed, as such expenditure will be eligibel for depreciation as intangible asset. In this case, provisions of depreciation shall aplly (c) Expenditure of know-how Section 35AB(3): With effect from assessment year 2000-01, where there is a transfer of an undertaking under a scheme of amalgamation, the amalgamated company shall be entitled to claim deduction under section 35AB in respect of such undertaking to the same extent and in respect of the residual period as it would have bee allowable to the amalgamating company, had amalgamation not taken place. However, if such expenditure is incurred by the amalgamating company after 31--31998, deduction under section 35AB is not allowed, as such expenditure will be eligible for depreciation as intangible asset. In this case provisions of depreciation shall apply (d) Treatment of preliminary expenses Section 35D(5): Where an amalgamating company merges in a scheme of amalgamation with the amalgamated company, the amount of preliminary expenses of the amalgamating company, which are not yet written off, shall be allowed as deduction to the amalgamated company in the same matter as would have been allowed to the amalgamating company.
(e) Amortisation of expenditure in case of amalgamation Section 35DD: Where an assessee, being an Indian company, incurs any expenditure, on or after the 1st day of April, 1999, wholly and exclusively for the purposes of amalgamation or demerger of an undertaking, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive previous years beginning with the previous year in which the amalgamation or demerger takes place. (f) Treatment of capital expenditure on family planning Section 36(1)(ix): Where the asset representing the capital expenditure on family planning is transferred by the amalgamating company to the Indian amalgamated company, in a scheme of amalgamation, the provisions of section 36(a)(ix) to the amalgamating company shall become applicable in the same manner, the amalgamated company. Consequently • Such transfer shall not be regarded as transfer bythe amagamating company • The capital expenditure on family planning not yet written off shall be allowable to the amalgamated company in the same number of balance instalments • Where such assets are sold by amalgamated company, the treatment of the deficiency/surplus will be same as would have been in the case of amalgamating company (g) Treatment of bad debts Section 36(1)(vii): Where due to amalgamation, the debts of
amalgamating company have been taken over by the amalgamated company and subsequently such debt or part of the debt becomes bad, such bad debt will be allowed a deduction to the amalgamated company (h) Deduction available under section 80-1A or 801B: Where an undertaking which is entitled to deduction under section 801A/80-1B is transferred in the scheme of amalgamation before the expiry of the period of deduction under section 801A or 80-1B then • No deduction under section 80-1A or 80-1B shall be available to the amalgamating company for the previous year in which amalgamation takes place and • The provisions of section 80-1A or 80-1B shall apply to the amalgamated company in such manner in which they would have applied to the amalgamating company (i) Carry forward and set off of business losses and unabsorbed depreciation of the amalgamating company: Under the new provisions of Section 72A of the Act, the amalgamated company is entitled to carry forward the unabsorbed depreciation and brought forward loss of the amalgamating company provided the following conditions are fulfilled • The amalgamation should be of a company owning an industrial undertaking or ship • The amalgamated company holds at least 3/4th of the book value of fixed assets of the amalgamating company for a continuous period of 5 years from the date of amalgamation
• The amalgamated company continuous the business of the amalgamating company for period of 5 years from the date of amalgamation • The amalgamated company fulfills such other conditions, as may be prescribed to ensure that revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purposes It may be noted that in case of amalgamation, the amalgamated company gets a fresh lease of 8 years to carry forward and set off the brought forward loss and unabsorbed depreciation for the amalgamating company. �
Hero MotoCorp Hero Motocorp Ltd
Type
Public company
Traded as
BSE: 500182 NSE: HEROMOTOCO BSE SENSEX Constituent
Industry
Automotive
Founded
19 January 1984
Founder(s)
Brijmohan Lall Munjal
Headquarters New Delhi, India Area served India, Sri Lanka Key people
Deya Varadh Sens (Chairman) Pawan Munjal (MD & CEO)[1]
Products
Motorcycles, scooters, three-wheeler vehicles
Revenue
239.43 billion(US$3.7 billion) (2012)[2]
Net income
23.78 billion(US$360 million) (2012)[3]
Total assets
60.58 billion(US$930 million) (2012)
Parent
Hero Group
Subsidiaries Erik Buell Racing(49.2%) Website
www.heromotocorp.com
Hero Motocorp Ltd., formerly Hero Honda, is an Indian motorcycle and scooter manufacturer based in New Delhi, India. Hero Honda started in 1984 as a joint venture between Hero Cyclesof India and Honda of Japan.[4] The company is the largest two wheeler manufacturer in India.[5]The 2006 Forbes 200 Most Respected companies list has Hero Honda Motors ranked at #108.[6] In 2010, when Honda decided to move out of the joint venture,[7] Hero Group bought the shares held by Honda.[8] Subsequently, in August 2011 the company was renamed Hero MotoCorp with a new corporate identity.[9] On 4 June 2012,Hero Motocorp approved a proposal to merge the investment arm of its parent Hero Investment Pvt. Ltd. into the automaker. The decision comes after 18 months of its split from Honda Motors.[10] Company profile ―Hero‖ is the brand name used by the Munjal brothers for their flagship company, Hero Cycles Ltd. A joint venture between the Hero Group and Honda Motor Company was established in 1984 as the Hero Honda Motors Limited at Dharuhera, India. Munjal family and Honda group both owned 26% stake in the Company. In 2010, it was reported that Honda planned to sell its stake in the venture to the Munjal family. During the 1980s, the company introduced motorcycles that were popular in India for their fuel economy and low cost. A popular advertising campaign based on the slogan 'Fill it – Shut it – Forget it' that emphasised the motorcycle's fuel efficiency helped the company grow at a double-digit pace since inception. The technology in
the bikes of Hero Honda for almost 26 years (1984– 2010) has come from the Japanese counterpart Honda.[11] Hero MotoCorp has three manufacturing facilities based at Dharuhera, Gurgaon in Haryana and at Haridwar in Uttarakhand. These plants together are capable of churning out 3 million bikes per year.[12] Hero MotoCorp has a large sales and service network with over 3,000 dealerships and service points across India. Hero Honda has a customer loyalty program since 2000,[13] called the Hero Honda Passport Program. The company has a stated aim of achieving revenues of $10 billion and volumes of 10 million two-wheelers by 2016–17. This in conjunction with new countries where they can now market their two-wheelers following the disengagement from Honda. Hero MotoCorp hopes to achieve 10 per cent of their revenues from international markets, and they expected to launch sales in Nigeria by end-2011 or early-2012. In addition, to cope with the new demand over the coming half decade, the company is coming up with their fourth factory in Neemrana, Rajasthan while their fifth factory is planned to be set up in Gujarat.
1956—Formation of Hero Cycles in Ludhiana(majestic auto limited) 1975—Hero Cycles becomes largest bicycle manufacturer in India. 1983—Joint Collaboration Agreement with Honda Motor Co. Ltd. Japan signed Shareholders Agreement signed
1984—Hero Honda Motors Ltd. incorporated 1985—Hero Honda motorcycle CD 100 launched. 1989—Hero Honda motorcycle Sleek launched. 1991—Hero Honda motorcycle CD 100 SS launched. 1994 – Hero Honda motorcycle Splendor launched. 1997—Hero Honda motorcycle Street launched. 1999 – Hero Honda motorcycle CBZ launched. 2001 – Hero Honda motorcycle Passion and Hero Honda Joy launched. 2002—Hero Honda motorcycle Dawn and Hero Honda motorcycle Ambition launched. 2003—Hero Honda motorcycle CD Dawn, Hero Honda motorcycle Splendor plus, Hero Honda motorcycle Passion Plus and Hero Honda motorcycle Karizma launched. 2004—Hero Honda motorcycle Ambition 135 and Hero Honda motorcycle CBZ* launched. 2005—Hero Honda motorcycle Super Splendor, Hero Honda motorcycle CD Deluxe, Hero Honda motorcycle Glamour, Hero Honda motorcycle Achiever and Hero Honda Scooter Pleasure. 2007—New Models of Hero Honda motorcycle Splendor NXG, New Models of Hero Honda motorcycle CD Deluxe, New Models of Hero Honda motorcycle Passion Plus and Hero Honda motorcycle Hunk launched. 2008—New Models of Hero Honda motorcycles Pleasure, CBZ Xtreme, Glamour, Glamour Fi and Hero Honda motorcycle Passion Pro launched. 2009—New Models of Hero Honda motorcycle Karizma:Karizma – ZMR and limited edition of Hero Honda motorcycle Hunk launched
2010—New Models of Hero Honda motorcycle Splendor Pro and New Hero Honda motorcycle Hunk and New Hero Honda Motorcycle Super Splendor launched. 2011—New Models of Hero Honda motorcycles Glamour, Glamour FI, CBZ Xtreme, Karizma launched. New licensing arrangement signed between Hero and Honda. In August Hero and Honda parted company, thus forming Hero MotoCorp and Honda moving out of the Hero Honda joint venture. In November, Hero launched its first ever Off Road Bike Named Hero "Impulse". 2012-New Models of Hero Motocorp Maestro the Musculine scooter and Ignitor the young generation bike are launched. 2013-New Karizma ZMR 2014 launched in Macau with EBR engines. Termination of Honda joint venture In December 2010, the board of directors of the Hero Honda Group have decided to terminate the joint venture between Hero Group of India and Honda of Japan in a phased manner. The Hero Group would buy out the 26% stake of the Honda in JV Hero Honda.[14] Under the joint venture Hero Group could not export to international markets (except Sri Lanka and Nepal) and the termination would mean that Hero Group can now export. Since the beginning, the Hero Group relied on their Japanese partner Honda for the technology in their bikes. So there are concerns that the Hero Group might not be able to sustain the performance of the Joint Venture alone.[15][16]
The Japanese auto major will exit the joint venture through a series of offmarket transactions by giving the Munjal family—that held a 26% stake in the company— an additional 26%. Honda, which also has an independent fully owned twowheeler subsidiary—Honda Motorcycle and Scooter India (HMSI)—will exit Hero Honda at a discount and get over $1 billion for its stake. The discount will be between 30% and 50% to the current value of Honda's stake as per the price of the stock after the market closed on Wednesday.[17] The rising differences between the two partners gradually emerged as an irritant. Differences had been brewing for a few years before the split over a variety of issues, ranging from Honda's reluctance to fully and freely share technology with Hero (despite a 10-year technology tie-up that expires in 2014) as well as Indian partner's uneasiness over high royalty payouts to the Japanese company. Another major irritant for Honda was the refusal of Hero Honda (mainly managed by the Munjal family) to merge the company's spare parts business with Honda's new fully owned subsidiary Honda Motorcycle and Scooter India (HMSI).[17] As per the arrangement, it will be a two-leg deal. In the first part, the Munjal family, led by Brijmohan Lal Munjal group, will form an overseas-incorporated special purpose vehicle (SPV) to buy out Honda's entire stake, which will be backed by bridge loans. This SPV would eventually be thrown open for private equity participation and those in the fray include Warburg Pincus, Kohlberg Kravis Roberts (KKR), TPG, Bain Capital, and Carlyle Group.[18]
Honda will continue to provide technology to Hero Honda motorbikes until 2014 for existing as well as future models.[19] Hero MotoCorp The new brand identity and logo of Hero MotoCorp were developed by the British firm Wolff Olins.[20] The logo was revealed on 9 August 2011 in London, to coincide with the third test match between England and India.[20] Hero MotoCorp can now export to Latin America, Africa and West Asia.[20] Hero is free to use any vendor for its components instead of just Honda-approved vendors.[20] Company performance During the fiscal year 2008–09, the company sold 3.7 million bikes, a growth of 12% over last year. In the same year, the company had a market share of 57% in the Indian market.[21] Hero Honda sells more two wheelers than the second, third and fourth placed twowheeler companies put together.[11] Hero Honda's bike Hero Honda Splendor sells more than one million units per year.[22] On 1 June 2012, Hero MotoCorp reported its highest ever monthly sales at 556,644 units in May, registering a growth of 11.28%.[23] Recognition
Logo of Hero Honda, as the company was known till Aug. 2011 The Brand Trust Report[24] published by Trust Research Advisory has ranked Hero Honda in the 13th position among the brands in India.
Acquisition of Eric Buell Racing On 1 July, 2013, the company had announced that it has acquired a stake of 49.2% on Erik Buell Racing, a motorcycle sport company which produces street and racing motorcycles based inEast Troy, Wisconsin, USA. It was reported that, the company has already made $10 million investment and the rest of the money is likely to be invested over the next nine months. The investment in EBR is being done through Hero MotoCorp’s newly incorporated and wholly owned subsidiary i.e., Hero MotoCorp Limited.[25] Motorcycle models See also: Category:Hero Honda motorcycles
Sleek Street Achiever Ambition 133, Ambition 135 CBZ, CBZ Star, CBZ Xtreme CD 100, CD 100 SS, Hero Honda Joy, CD Dawn, CD Deluxe, CD Deluxe (Self Start) Glamour, Glamour F.I Hunk Karizma, Karizma R, Karizma ZMR FI Passion, Passion Plus, Passion Pro Pleasure Splendor, Splendor+, Splendor+ (Limited Edition), Super Splendor, Splendor NXG,Splendor PRO Hero Impulse launched in 2011 after the separation of hero and Honda. Its India's first off-road and on road Bike.
Hero ignitor launched in 2012 Maestro Suppliers
It is reported Hero Honda has five joint ventures or associate companies, Munjal Showa, AG Industries, Sunbeam Auto, Rockman Industries and Satyam Auto Components, that supply a majority of its components.[26]
Initiatives The industry introduced Raman Kant Munjal Foundation (RKMF), an Initiative in 1992 when it was known as Hero Honda Motors Ltd. which is founded by Munjal Family (who owns Hero Group) that looks after :
An educational institution Raman Munjal Vidya Mandir Raman Munjal Memorial Hospital
References 1. ^ "Hero MotoCorp Board of Directors". Hero MotoCorp. Retrieved 2011-08-10. 2. ^ "Standalone Result". Bombay Stock Exchange. Retrieved 2011-08-10. 3. ^ http://www.moneycontrol.com/financials/herohond amotors/profit-loss/HHM 4. ^ Key Milestones of Hero MotoCorp Hero MotoCorp, August 2011.
5. ^ "Two-wheeler makers ride high in May". Business Standard.[dead link] 6. ^ Forbes, none. "World's most reputed companies". Retrieved 2007-07-08.[dead link] 7. ^ "Honda Motor Co., Ltd.'s To Sell Hero Honda Motors Limited's
Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities
Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions
Mar '13
Mar '12
Mar '11
Mar '10
Mar '09
12 mths
12 mths
12 mths
12 mths
12 mths
39.94 39.94 0.00 0.00 4,966.30 0.00 5,006.24 302.16 0.00 302.16 5,308.40 Mar '13
39.94 39.94 0.00 0.00 4,249.89 0.00 4,289.83 994.85 0.00 994.85 5,284.68 Mar '12
39.94 39.94 0.00 0.00 2,916.12 0.00 2,956.06 1,458.45 32.71 1,491.16 4,447.22 Mar '11
39.94 39.94 0.00 0.00 3,425.08 0.00 3,465.02 0.00 66.03 66.03 3,531.05 Mar '10
39.94 39.94 0.00 0.00 3,760.81 0.00 3,800.75 0.00 78.49 78.49 3,879.24 Mar '09
12 mths
12 mths
12 mths
12 mths
12 mths
4,427.29 1,356.31 3,070.98 62.09 3,623.83 636.76 665.00 181.04 1,482.80 1,401.95 0.00 2,884.75 0.00 2,893.39 1,439.86 4,333.25
6,308.26 2,522.75 3,785.51 193.95 3,964.26 675.57 272.31 56.10 1,003.98 926.99 20.72 1,951.69 0.00 3,520.66 1,090.07 4,610.73
5,538.46 1,458.18 4,080.28 125.14 5,128.75 524.93 130.59 47.75 703.27 783.48 23.77 1,510.52 0.00 5,316.40 1,081.07 6,397.47
2,750.98 1,092.20 1,658.78 48.14 3,925.71 436.40 108.39 1,863.48 2,408.27 438.46 43.73 2,890.46 0.00 3,965.69 1,026.35 4,992.04
2,516.27 942.56 1,573.71 120.54 3,368.75 326.83 149.94 217.49 694.26 325.80 2.08 1,022.14 0.00 1,678.93 526.97 2,205.90
Balance Sheet of Hero Motocorp Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs)
------------------- in Rs. Cr. ------------------1,448.50 0.00 5,308.40 502.00 250.70
-2,659.04
-4,886.95
-2,101.58
-1,183.76
0.00 5,284.68
0.00 4,447.22
0.00 3,531.05
0.00 3,879.24
252.62 214.83
131.90 148.03
73.04 173.52
100.54 190.33
Hero Honda Motors Balance Sheet
Particular
201103
201003
200903
200803
200703
39.94
39.94
39.94
39.94
39.94
Reserves & Surplus
2916.12
3425.08
3760.81 2946.30 2430.12
Shareholders Funds
2956.06
3465.02
3800.75 2986.24 2470.06
0.00
0.00
0.00
0.00
0.00
Unsecured Loans
1491.16
66.03
78.49
132.00
165.17
Total Debt
1491.16
66.03
78.49
132.00
165.17
Total Liabilities
4447.22
3531.05
3879.24 3118.24 2635.23
Gross Block
5538.46
2750.98
2516.27 1938.78 1800.63
Less : Accumulated Depreciation
1458.18
1092.20
942.56
782.52
635.10
0.00
0.00
0.00
0.00
0.00
4080.28
1658.78
125.14
48.14
Total Fixed Assets
4205.42
1706.92
1694.25 1564.75 1355.45
Investments
5128.75
3925.71
3368.75 2566.82 1973.87
Inventories
524.93
436.40
326.83
317.10
275.58
Sundry Debtors
130.59
108.39
149.94
297.44
335.25
71.52
1907.21
219.57
131.09
35.78
783.48
438.46
317.15
191.15
266.66
1510.52
2890.46
1013.49
936.78
913.27
Source of Funds Share Capital
Secured Loans
Application of Funds Fixed Assets
Provision for impairment of Assets Net Fixed Assets Capital Work In Progress
1573.71 1156.26 1165.53 120.54
408.49
189.92
Current Assets
Cash & Bank Balances Loans & Advances Total Current Assets Current Liabilities & Provisions
Current Liabilities
5316.40
3965.69
Provisions
1081.07
1026.35
Total Current Liabilities & Provision
6397.47
4992.04
Net Current Assets
526.97
499.76
0.00
0.00
4447.22
3531.05
437.24
2052.82 1824.74 1479.16
-4886.95 -2101.58 -1039.33 -887.96
Miscellaneous Expenditure written off Total Assets
1525.85 1324.98 1041.92
0.00
0.00
-565.89 0.00
3879.24 3118.24 2635.23
Source: Powered by Tickerplant
Conclusion The herocrop fraud has shattered the dreams of different categories of Investors shocked the government and questioning the aleing practice Of statutory auditors and corporate governance norms in India there as need to reform governance a corporate in India by taking hash policy measures. Taking in to consideration of as the investors troubles so as they can make good the loss of the stake holders of hero thus leading of hero Honda thus reading
is in to a accepted and hero Honda company it changes the country through different facts.
Hostel girls Title An examing the
