AMALGAMATION (SELLING COMPANY HOLDING SHARES IN PURCHASING COMPANY)

amalgamation inter company holdings

AMALGAMATION INTER COMPANY HOLDINGS

Intercompany holdings are divided into three types
Purchasing company holding shares in selling company
Selling company holding shares in purchasing company
Purchasing company and selling company hold shares in each other

Selling company holding shares in purchasing company

inter company holdings

Let us assume the assets of selling company (excluding inter company investment)=Rs.1600000/-
Share capital of selling company = 100000
Fair value of purchasing company shares= Rs.10/-
Issue price of purchasing company shares= Rs.20/-
Share exchange ratio= 1 share for each share of selling company

Computation of purchase consideration

Payments method:

Step:1

Calculate number of shares to be issued by purchasing company to selling company
Exchange ratio= 1:1
Existing total shares of selling company = 100000 so total number of shares issued by purchasing company will be 100000shares

Step:2
Deduct number of shares already held by the selling company from the total shares issued by purchasing company
As the selling company holding 20000shares the same will be deducted from total shares issued by the purchasing company

Step:3
Purchase consideration is the aggregate of:

    A. Net number of shares arrived (100000-20000)X20             Rs.16,00,000
    B.   Cash                                                                                  ----0----
  C.  Total                                                                                                                                                                                                    Rs.16,00,000


Net assets method

Step:1
Calculate net asset of selling company at agreed value or fair value , including investment in selling company at fair value
Rs.18,00,000+20000X10=20,00,000/-

Step:2
Determine the mode of discharge it is either by cash or shares at agreed value

     20,00,000/20=100000 shares

Step:3
Deduct number of shares already held by the selling company in purchasing company.
20000shares

Step:4
Purchase consideration is the aggregate of:

   A.   Net number of shares arrived (100000-20000)X20                     Rs.16,00,000
   B.   Cash                                                                                         ----0----
  C.  Total                                                                                                                                                                                                           Rs.16,00,000


Accounting in the books of selling company (transferor company)

Transfer to realization account
All assets taken over except investment held by selling company in purchasing company
Liabilities taken over

Purchase consideration
Due entry
Receipt entry

Realization of assets not taken over

Amount due to shareholders
Share capital
Reserves and surplus
Realisation profit or loss

Settlement to shareholders by transfer of:
Purchase consideration received
Shares already held by selling company in purchasing company

Accounting in the books of purchasing company (transferee 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 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 General reserve of selling company



XXXX




XXXX
XXXX
XXXX
XXXX

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