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Amalgamation and Absorption
Amalgamation means combination of two or more companies where two or more companies are
combined to form a third new company or an existing company is absorbed by another company.
Conditions for amalgamation in the nature of merger
1. All Assets and Liabilities of the Transferor company become Assets and Liabilities of Transferee
company
2. Assets and Liabilities must be recorded at book (existing) values except to ensure uniformity of
accounting policies.
3. Shareholders holding not less than 90% of the face value of equity shares of Transferor Company
become equity share holders of Transferee company
4. Purchase Consideration to equity share holders must be paid only in the form of equity shares,
except that cash may be paid for fractional shares
5. Business of Transferor Company must be continued by Transferee Company
Conditions for amalgamation in the nature of purchase
Where any of the above conditions are not satisfied, it can be said to be an Amalgamation in the
nature of purchase
Differences between external and internal reconstruction
1. Internal reconstruction
Involves only one company
No new company is formed
Changes are made to assets and liabilities of existing company without liquidating it
2. External reconstruction
Involves atleast 2 companies
A company takes over assets and liabilities of another company
The old company may be liquidated
1. A Ltd wishes to take over B Ltd which has 7,500 shares of Rs 100 each and issues the following to
B Ltd:
10,000 equity shares of Rs 10 each at par
Rs 50 per share of B Ltd
1,000 debentures of Rs 10 each
5,000 8% preference shares of Rs 10 each (market value Rs 55)
2. A Ltd wishes to take over B Ltd which has 2,000 shares of Rs 100 each and issues the following to
the shareholders B Ltd:
10,000 equity shares of Rs 10 each at par at a price of Rs 15 per share
5,000 8% preference shares of Rs 10 each at 10% premium
Balance in cash
The Total Assets of B Ltd is Rs 20,00,000 and outside liabilities is Rs 17,00,000.
