AMALGAMATION :- JOURNAL ENTRIES IN THE BOOKS OF TRANSFEROR AND TRANSFEREE COMPANY

ACCOUNTING FOR AMALGAMATION PART-II


Amalgamation means the liquidation of one or more companies and transfer of business of liquidated entities to another entity. There may be amalgamation either transfer of two or more undertakings to an existing company or new company.

In the part -1 CLICK HERE FOR PART - I Accounting for amalgamation we learnt about nature of amalgamation and method of accounting, now we are going to learn journal entries in the event of amalgamation.

JOURNAL ENTRIES IN BOOKS OF TRANSFEROR COMPANY AND TRANSFEREE COMPANY

IN THE BOOKS OF TRANSFEROR COMPANY(SELLING COMPANY)


Accounting standard 14 is not applicable for selling company.
Accounting is done with the objective of closing books of accounts and simultaneous determination of profit or loss on closing books of accounts.
 
  Transfer to realization account
SL.NO
PARTICULAR
DEBIT
CREDIT
1
Transfer all Assets at book value to realization a/c ( except Miscellaneous)
   Realisation A/C           Dr
          To Assets A/c


XXX



XXX
2
Transfer all liabilities taken over purchasing company(Except equity, preference and reserves)
   Liabilities A/c           Dr
         To Realisation A/c



XXX




XXX


  PURCHASE CONSIDERATION
  Purchase consideration represents consideration paid in cash, shares,              debentures etc.
SL.NO
PARTICULAR
DEBIT
CREDIT
1
Due entry for consideration
  Transferee company A/C           Dr
          To Realisation A/c

XXX


XXX
2
Receipt of consideration
Shares/Cash A/c           Dr
     To Transferee company A/c

XXX


XXX

SALE OF ASSETS NOT TAKEN OVER BY PURCHASING COMPANY
SL.NO
PARTICULAR
DEBIT
CREDIT
1
Sale with assuming profit
  Bank A/C           Dr
       To Assets A/C(book value)     
       To Realisation A/c(Profits)

XXX


XXX
XXX
2
Sale with assuming loss
Bank A/c                  Dr
Realisation A/c(loss)      Dr
     To Assets A/c(Book Value)

XXX
XXX



XXX

SETTLEMENT OF LIABILITIES NOT TAKEN OVER BY PURCHASING COMPANY
SL.NO
PARTICULAR
DEBIT
CREDIT
1
Settlement with assuming at discount)
  Liabilities A/C           Dr
       To Bank A/C(book value)     
       To Realisation A/c(Profits)

XXX


XXX
XXX
2
Settlement with assuming at loss
Liabilities A/c                  Dr
Realisation A/c(loss)      Dr
     To Bank A/c(Book Value)

XXX
XXX



XXX



 Realisation Expense
SL.NO
PARTICULAR
DEBIT
CREDIT
1
Incurred by transferor(Selling Co.) company
Realisation A/c
     To Bank A/c

XXX


XXX
2
Incurred by transferee(purchasing Co.) company
             NO ENRTY

NIL

NIL
3
Incurred by transferor(Selling Co.) company
Reimbursed by transferee company
Transferee company A/c    Dr
        To Bank A/c
On Reimbursement
   Bank A/c                Dr
      To Transferee company A/c


XXX


XXX




XXX


XXX

 AMOUNT DUE TO EQUITY SHAREHOLDERS
SL.NO
PARTICULAR
DEBIT
CREDIT
1
Transfer of share capital and reverse to shareholders account
Equity Share capital   A/c     Dr
Reserves   A/c                Dr
        To Shareholders A/c


XXX
XXX





XXX
2
Transfer of balances in realization account
Realisation A/c (Profit)        Dr
     To shareholders A/c
In Case of loss
 Shareholders A/c           Dr
        To Realisation A/c (Loss)

XXX


XXX


XXX


XXX

  SETTLEMENT TO SHAREHOLDERS BY TRANSFER OF CONSIDERATION      RECCEIVED
SL.NO
PARTICULAR
DEBIT
CREDIT
1
Shareholders A/c       Dr
     To shares of transferee company A/c
     To Bank   A/c
XXX
XXX



XXX

IN THE BOOKS OF TRANSFEREE COMPANY(PURCHASING COMPANY)

Accounting should be done as per accounting standard 14.
Accounting standard classifies amalgamation for the purpose of accounting into two types:
  •  Amalgamation in nature of merger
  •  Amalgamation in nature of purchase

 To know more about nature of amalgamation CLICK HERE FOR AMALGAMATION PART -1

Depending upon nature of amalgamation the method of accounting is decided
Method of Accounting
Nature of Amalgamation
Method of Accounting
Merger
Pooling of Interest Method
Purchase
Purchase Method

Journal Entries in case of purchase


  Due entry for business purchase
SL.NO
PARTICULAR
DEBIT
CREDIT
1
Business Purchase A/c       Dr
     To Liquidator transferor company A/c
XXX


XXX

 Incorporation of assets and liabilities taken over
SL.NO
PARTICULAR
DEBIT
CREDIT
1
Sale consideration more than net assets of selling company.
Assets A/c       Dr
Goodwill A/c     Dr(Bal.Fig)
     To Liabilities A/c
     To Business Purchase A/c


XXX
XXX





XXX
XXX
2
Sale consideration less than net assets of selling company.
Assets A/c       Dr
     To Liabilities A/c
     To Business Purchase A/c
     To Capital Reserve A/c (Bal.Fig)


XXX



XXX
XXX
XXX

  Sale consideration - net assets of selling company = positive amount =             Goodwill (loss to purchasing Company)
  Sale consideration - net assets of selling company = Negative amount =             Capital Reserve (profit to Purchasing company)

DISCHARGE OF PURCHASE CONSIDERATION
SL.NO
PARTICULAR
DEBIT
CREDIT
1
Liquidator of transferor company A/c       Dr
     To Share capital A/c
     To Securities premium A/c
     To Bank A/c       
XXX


XXX
XXX
XXX

OTHERS
SL.NO
PARTICULAR
DEBIT
CREDIT
1
Cancellation of inter company owings
Creditors A/c             Dr
   To Debtors      

XXX



XXX
2
Elimination of unrealised profits on goods sold by one company to the other and remaining unsold on the date of amalgamation
Goodwill/Capital reserve A/c            Dr
     To Stock reserve/Stock A/c



XXX




XXX
3
Realisation expense
Incurred by purchasing company
Goodwill/Capital reserve A/c            Dr
      To Bank A/c
Realisation incurred by selling company
   NO ENTRY

Realisation expense by selling and the same was reimbursed by purchasing company
Goodwill/Capital reserve A/c            Dr
      To Bank A/c


XXX


NIL



XXX




XXX

NIL




XXX

Contra entry for statutory reserve appearing in selling company and the same to be maintained by purchasing company.


SL.NO
PARTICULAR
DEBIT
CREDIT
1
Amalgamation Adjustment A/c       Dr
     To Statutory reserve A/c
XXX


XXX



IN OUR NEXT TOPIC WE ARE GOING TO LEARN HOW TO DO AMALGAMATION PROBLEMS IN 8 STEPS

Comments

  1. sir purchase consideration is not paid in debenture form (as-14) applicable

    ReplyDelete
    Replies
    1. Debentures can not be a part of Purchase Consideration, only if the Amalgamation is in the nature of Merger. If Amalgamation is in the nature of Purchase, Debentures can be a part of Purchase Consideration.

      Delete
    2. Sir if purchasing company take over unrecorded asset then what is a treatment in books of vendors company.

      Delete
  2. IT HELPED ME A LOTT THNK YOU VERY MUCH

    ReplyDelete
  3. This comment has been removed by a blog administrator.

    ReplyDelete
  4. What is the entry if there is a deficit balance of statements of profit and loss in reserve and surplus

    ReplyDelete
  5. Please reply how is the accounting treatment if the amalgamation expense if any, borne by purchasing company. Journal entry, ledger posting and

    new company's balance sheet

    ReplyDelete
    Replies
    1. This comment has been removed by the author.

      Delete
    2. This comment has been removed by the author.

      Delete
  6. if Amalgamation/Liquidation/ expenses of Transferor Co. borne by
    Transferee Co. then

    In the books of transferor Co.

    No need to pass entry


    In the books of Transferee Co.

    Goodwill A/c Dr..
    To Bank A/c

    if Amalgamation/Liquidation/ expenses of Transferor Co. Reimbursed by
    Transferor Co. then

    In the Books of transferor Co.

    First:

    Realistion A/c Dr.. (At the time of Paying)
    To Bank A/c

    Second:

    Bank A/c Dr.. (At the time of reimbursement of Expenses)
    To Realisation A/c


    In The books of Transferee Co.

    Goodwill A/c Dr..
    To Bank A/c

    ReplyDelete
    Replies
    1. sir what is accounting treatment for stamp duty paid on registration of immovable by transferee in tranferee books

      Delete
  7. Will this transaction result into tax liability to the Transferor (if assets transferred > liabilities transferred)? What tax impliactions will Tranferee have?

    ReplyDelete
  8. Parminder Singh please reply to Neelima's doubt

    ReplyDelete
  9. Is statutory reserve transfered to Equity share holder a/c in purshasing or shown on purchase consideration??

    ReplyDelete
    Replies
    1. No.... It will not transferd to share holders ac .. As in case of amalgamation by purchase it will be adjusted separately in d balancesheet of d transferee co.

      Delete
  10. What entries should be passed in the books of a company that goes into liquidation for the purpose of amalgamation?

    ReplyDelete
  11. During amalgamation do cash at bank goes in the general journal

    ReplyDelete
  12. Best for last minute revision

    ReplyDelete
  13. It helped me for 3 attempts..
    Thank you

    ReplyDelete
  14. Sir if in the question we have to passed entries in the books of transferor company in case of amalgamation so we have to write full entries of both

    ReplyDelete
  15. This comment has been removed by the author.

    ReplyDelete
  16. This comment has been removed by a blog administrator.

    ReplyDelete
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    ReplyDelete
  19. accounting entry for purchasing company and vendor company in terms of unrealized profit?

    ReplyDelete
    Replies
    1. In the books of purchasing co.

      G/w or capital reserve a/c Dr.
      To current asset (stock) a/c

      Delete
  20. if a is a purchasing company and b is vendor company. a sum of rs. 100000 is owed by a ltd. to b ltd. also included in the inventory of a ltd. is rs. 120000 goods supplied by b ltd. at cost plus 20%. what is unrealized profit?

    ReplyDelete
  21. In the books of purchasing co. 1) inter co. Owings

    Trade payable a/c Dr.
    To trade receivable a/c 1lac rs

    2) unrealized profit in stock

    Let X be cost

    X +20%X =1,20,000

    So X=cost = 1,00,000

    Unrealized profit =1.2 lac - 1lac
    = 20,000

    Capital reserve a/c Dr.
    To current asset (stock)a/c. 20,000rs

    ReplyDelete
  22. Sir if purchasing company take over unrecorded asset then what is a treatment in books of vendors company.

    ReplyDelete

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