Amalgamation, Absorption and External Reconstructions

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Assignment Amalgamation, Absorption & External Reconstructions I. Amalgamation: - Amalgamation means joining 2 or more company to firm a bigger company. In this case the two or more company will close down their business and the bigger company which is newly formed will continues the business. II. Absorption:- Absorption means an existing company taking over 1 or more company. In this case one or more company will close down their business and this business will be continued by the name of the existing company. III. External Reconstructions:- It is done by loss making company. In this case loss making company will close down its business and continue the business in the name of the newly formed company. Old company New company Amalgamation 2 or more company 1 newly formed company Absorption 1 or more company 1 existing company External Reconstruction 1 loss making company 1 newly formed company Important terms:1. Business:- It means asset and liabilities 2. Old company:- It is the selling company or vendor company or amalgamating company. This company will close down the business and the business will be continued in the name of new company. 3. New company:- It is the purchasing company or Amalgamated company. The business will be continuing with the name of this company. 4. Purchase consideration:- It is the amount paid for purchase of business. As per AS14 purchase consideration is the amount payable to the share holders of old company. 5. Modes of Payment:- It is the manner in which purchase consideration will be discharged usually cash, equity share, preference share, debentures are the modes of payments. Method of calculating purchase consideration 1. Lump sum method:- Under this method the purchase consideration amount is directly given in the question. This method is without any basis of calculation. 2. Payment method:- Under this method the amount of different modes of payment are given the total of all such payment will determines the total purchase consideration. 3. Net asset method:- Under this method the purchase consideration is calculated by the different asset taken over at agreed values and liabilities taken over at agreed values. In the question this method will be followed only if when purchase consideration cannot be calculated by lump sum method or payment method. Purchase consideration under this methods is calculated as under:Assets taken over ( at agreed value ) Less:- Liabilities taken over ( at agreed value ) Purchase consideration

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Assignment M/S _______________________________ Cost sheet for the period_________________________ Quantity manufactured:- ___________________ Workin Total Quantity Sold:___________________ g Cost

Direct cost:Raw material consumed:Opening stock of Raw material Add. Purchase of raw material Add. Carriage inward Less. Closing stock of raw material Direct wages Direct expenses Prime cost

Indirect cost Factory Over Heads e.g. Power and fuel Factory rent etc. less sale of scrap Gross factory cost Add. Opening stock of work in progress Less. Closing stock of work in progress Net work cost/ Net factory cost/ Factory cost/ Works cost. Office and Administration Over Heads e.g. Office salaries Printing and stationery etc.

Cost of production of goods produced Add. Opening stock of finished goods Less. Closing stock of finished goods Cost of production of goods sold Selling and Distribution Over Heads. e.g. Advertisement expenses Door Delivery

Cost of Sales/ Total Cost Profit / Loss

Cost per unit

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Assignment

Sales