Write the Difference between Amalgamation in the nature of merger and Amalgamation
in the nature of purchase.
Answers
1. Transfer of Assets and Liabilities
⋅ Nature of Merger: There is transfer of all assets & liabilities.
⋅ Nature of Purchase: There need not be transfer for all assets & liabilities.
2. Equity Shareholder’s holding 90%
⋅ Nature of Merger: Equity shareholders holding 90% equity shares in transferor company become shareholders of transferee company.
⋅ Nature of Purchase: Equity shareholders need not become shareholders of transferee company.
3. Purchase Consideration
⋅ Nature of Merger: Purchase consideration is discharged wholly by issue of equity shares (except cash for fractional shares)
⋅ Nature of Purchase: Purchase consideration need not be discharged wholly by issue of equity shares.
4. Same Business
⋅ Nature of Merger: The same business of the transferor company is intended to be carried on by the transferee company.
⋅ Nature of Purchase: The business of the transferor company need not be intended to be carried on by the transferee company.
5. Recording of Assets & Liabilities
⋅ Nature of Merger: The assets & liabilities taken over are recorded at their existing carrying amounts except where adjustment is required to ensure uniformity of accounting policies.
⋅ Nature of Purchase: The assets & liabilities taken over are recorded at their existing carrying amounts or the basis of their fair values.
6. Recording of Reserves of Transferor Co.
⋅ Nature of Merger: All reserves are recorded at their existing carrying amounts and in the same form.
⋅ Nature of Purchase: Only statutory reserves are recorded at their existing carrying amounts.
7. Recording of Balance of Profit & Loss A/c of Transferor
⋅ Nature of Merger: The balance of P&L A/c should be aggregated with the corresponding balance of the transferee co. or transferred to the General.
⋅ Nature of Purchase: The balance of P&L A/c losses its identity and is not recorded at all.
Amalgamation means when two or more companies combine to form one.
Following are the difference between amalgamation in the nature of merger and amalgamation in the nature of purchase :-
Nature of merger Nature of purchase
1) all assets and liabilities are 1) all assets and liabilities are not
transferred. transferred.
2) those equity shareholders 2) those shareholders don't have to become shareholders of transferee become shareholders of transferee company who have 90% transferee company.
share.
3) discharge of purchase 3) no need to discharge purchase
consideration by issuing equity consideration by issuing equity
shares. shares.
4) same business is to be continued 4) no need to continue same
business.
5) all reserves are to be recorded at 5) only statutory reserves are to
their existing carrying values be recorded at their existing
carrying values.