AMALGAMATION INTER COMPANY OWING (PURCHASING COMPANY HAVING SHARES IN SELLING COMPANY)

AMALGAMATION INTER COMPANY HOLDINGS

Inter company holdings are divided into three types

  1. Purchasing company holding shares in selling company
  2. Selling company holding shares in purchasing company
  3. Purchasing company and selling company hold shares in each other


Purchasing company holding shares in selling company





purchasing company having shares in selling company





Purchasing company is holding 20% shares in selling company, let us assume fair value of net assets of selling ltd Rs.80 lakhs


Computation of purchase consideration

Consideration is to be calculated only with reference to outside shareholders , since purchasing company already holds some shares in selling company.

NET ASSETS METHOD

Step 1
Net assets of selling company is Rs.80 lakhs
Step 2
Calculate Proportion of net assets belonging to outside shareholders, as the purchasing company holding 20% the outsiders share will be 80% so the amount will be Rs.64 lakhs(Rs.80 lakhsx80%)

Accounting-Books of transferor company

Transfer to realization account
All assets taken over at book value
Liabilities taken over at balance sheet value.

Purchase consideration-for outsiders only
Due entry
Receipt entry

Cancellation of paid up share capital to the extent of purchasing company share
    Share capital A/c( Purchasing company share)       Dr        XXXX
                       To Realisation A/c                                      XXXX

Amount due to shareholders
Share capital(balance belong to outsiders) and reserves in full and any profit or loss in realization.

Settlement to shareholders by transfer of consideration received.

Accounting in books of transferee company(Purchasing Company)

Due entry for consideration to outside shareholders of transferor company.
Incorporation of assets and liabilities taken over.
Cancellation of investment held by purchasing company in selling company.

  Purchase Method

SL.NO
PARTICULAR
DEBIT
CREDIT
1
If PC is greater than net assets of selling company

Asset A/c      Dr
Goodwill A/c   Dr
         To Liabilities A/c
         To Business consideration A/c
         To Investment in selling company A/c         


XXXX 
XXXX




XXXX
XXXX
XXXX
2
If PC is lesser than net assets of selling company

Asset A/c     Dr
         To Liabilities A/c
         To Business consideration A/c
         To Capital Reserve A/c   
         To Investment in selling company A/c 



XXXX




XXXX
XXXX
XXXX
XXXX

Pooling of interest Method

Ascertain difference between paid up capital of selling company and aggregate of:-
Purchase consideration to outsiders
Investments held by purchasing company in selling company

Above excess or shortfall to be adjusted as discussed earlier against:
Free reserves of selling company
Free reserves of purchasing company
Profit & Loss A/c

SL.NO
PARTICULAR
DEBIT
CREDIT
1
If PC is greater than paid up capital of selling company

Asset A/c      Dr
         To Liabilities A/c
         To Business consideration A/c
         To Investment in selling company A/c
         To General reserve of selling company         



XXXX




XXXX
XXXX
XXXX
2
If PC is lesser than paid up capital of selling company

Asset A/c     Dr
         To Liabilities A/c
         To Business consideration A/c
         To Capital Reserve A/c   
         To Investment in selling company   
         To General reserve of selling                           company



XXXX




XXXX
XXXX
XXXX
XXXX

Other adjustments
Cancellation of inter company owing s
Realisation expense incurred by purchasing company

Revaluation of investments already held by purchasing company in selling company

Revaluation is to be done only when specified .It is normally done where the investment were acquired as current investment or non trade investment.
The profit and loss on revaluation of investment is to be recognized in purchasing company books.
Journal entry will be ( assumed profit on revaluation)
SL.NO
PARTICULAR
DEBIT
CREDIT
1
Investment in selling company A/c      Dr
         To profit & loss  A/c
XXXX

XXXX

Debit
If investment is revalued upward in while calculating the value of selling company the same has to effect by increasing in purchasing company by debiting he investment account.
Credit

The profit on revaluation of investments will be credited to profit and loss account as per nominal account “Credit all income and profit”


Comments

Post a Comment

Popular posts from this blog

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

SOLVE AMALGAMATION PROBLEM IN 7 STEPS

PREPARE CONSOLIDATED BALANCE SHEET IN 9 STEPS