|
|
Amalgamation is an arrangement where two or more companies consolidate their business to form a new firm, or become a subsidiary of any one of the company. For practical purposes, the terms amalgamation and merger are used interchangeably. However, there is a slight difference. Merger involves the fusion of two or more companies into a single company where the identity of some of the companies gets dissolved. On the other hand, amalgamation involves dissolving the entities of amalgamating companies and forming a new company having a separate legal entity.
Normally, there are two types of amalgamations. The first one is similar to a merger where all the assets and liabilities and shareholders of the amalgamating companies are combined together. The accounting treatment is done using the pooling of interests method. It involves laying down a standard accounting policy for all the companies and then adding their relevant accounting figures like capital reserve, machinery, etc. to arrive at revised figures.
The second type of amalgamation involves acquisition of one company by another company. In this, the shareholders of the acquired company may not have the same equity rights as earlier, or the business of the acquired company may be discontinued. This is like a purchase of a business. The accounting treatment is done using a purchase method. It involves recording assets and liabilities at their existing values or revaluating them on the basis of their fair values at the time of amalgamation.
|
