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