Amalgamation and merger


In today’s competitive world every company wants to generate more and more income and earn profits in their day-to-day business because they lack in so many aspects like management, nonavailability of raw materials, technology, and appropriate place for doing their business. to tackle this problem and to excel in the corporate world, they in turn indulge in corporate restructuring. Corporate restructuring is a broader concept that includes internal reconstruction and external reconstruction. Internal reconstruction includes the reduction and alteration of share capital and on other hand, and external reconstruction includes amalgamation, absorption, and liquidation. Amalgamation is a part of external reconstruction. Whenever a company gets into the process of amalgamation, there are two ways first is an amalgamation in the nature of purchase and second is an amalgamation in the nature of merger. Sometimes, internal reconstruction is not desirable and companies go for external reconstruction in the form of amalgamation. This is basically done to avail greater benefits of other companies. Basically in amalgamation, one company shares the resources of the other company and another company shares the resources of this company. For example, company A lacks in technology, and company B lacks in management, so both companies will amalgamate to get each other’s benefits.


An amalgamation is a combination of two or more companies into a new entity. It means that when two or more two companies combine and a new entity is formed out of the resources of the both companies is known as amalgamation.


Accounting standard 14 deals with accounting for amalgamation and the treatment of the resulting goodwill or the reserves. It basically applies to  companies who want to amalgamate but some of its requirements are also applicable to financial statements of other companies.   It does not cater to the cases where acquisition takes place. Whenever any company goes for amalgamation it should follow the requirement as provided in AS-14.



In amalgamation in the nature of purchase, one company, the transferee company, purchases the business of the transferor company at a specified rate. In this the assets and liabilities of the transferor company are transferred to the transferee company on any condition. There are specified conditions which should be fulfilled if there is amalgamation in the nature of merger, but this not in the case of purchase method.


In amalgamation in the nature of merger one company merges into another company. If this particular method is to be followed, there are certain conditions which should be followed. These conditions are as follows-

·         All the assets and liabilities of the transferor company should become the assets of the transferee company, after  amalgamation.

·         Shareholders holding not less than 90% of the face value of the transferor company (other than equity shares already held before amalgamation)become equity shareholders of the transferee company by virtue of amalgamation.

·         The consideration for amalgamation receivable by those equity shareholders of the transferor company is discharged by the transferee company wholly by issue of equity share in the transferee company.

·         The business of both the transferee and transferor company should be the same.

·         The assets and liabilities that are transferring in the transferee company should be recorded at book value.


According to AS-14, purchase consideration is 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. Hence, the direct payment to the creditors of the transferor company is not included in the purchase consideration. The amount of purchase consideration depends on the value of its components.



Pooling of interest method of accounting is one in which the assets, liabilities and reserves are combined and shown at their historical value, as of the date of amalgamation. All the assets and liabilities of the companies undergoing merger are aggregated. The identity of the transferor company’s reserves is kept intact.


Purchase method is an accounting method, wherein the assets and liabilities of the transferor are shown at their market value in the books of the transferee company. In this only those assets and liabilities are recorded which are taken over by it. Surplus of deficit of purchase consideration over the net assets acquired, should be credited or debited ,as capital reserves or goodwill.


Accounting standard- 14 of Companies Act 2013

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