In an amalgamation two or more companies are combined into one by merger or by one taking over the other. Therefore the term “amalgamation” contemplates two kinds of activities; i) Two or more companies join to form a new company or,
ii) Absorption and blending of one by the other.
Thus amalgamation includes absorption.
The purpose of companies joining together is to secure various advantages such as economies of large scale production, avoiding competition, increasing efficiency, expansion, etc.
The companies going into liquidation or merged companies are called vendor companies or transferor companies. The new company which is formed to takeover all the liquidated companies or the company with which the transferor company is merged is called transferee or vendee.
In case of amalgamation the assets and liabilities of transferor company are amalgamated and the transferee company becomes vested with all such assets and liabilities.
DEFINITIONS: The following terms are used in this standard with the meanings specified.
(a) Amalgamation means an amalgamation pursuant to the
provisions of the Companies Act, 1956 or any other statute
which may be applicable to companies.
(b) Transferor company means the company which is amalgamated into another company.
(c) Transferee company means the company into which a
transferor company is amalgamated.
(d) Reserve means the portion of earnings, receipts or other surplus of an enterprise (whether capital or revenue) appropriated by the management for a general or a specific purpose other than a provision for depreciation or diminution in the value of assets or for a known liability.
(e) Amalgamation in the nature of merger is an amalgamation
which satisfies all the following conditions.
(i) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of
the transferee company.
(ii) Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than
the equity shares already held therein, immediately before
the amalgamation, by the transferee company or its
subsidiaries or their nominees) become equity
shareholders of the transferee company by virtue of the
(iii) The consideration for the amalgamation receivable by
those equity shareholders of the transferor company who
agree to become equity shareholders of the transferee
company is discharged by the transferee company wholly
by the issue of equity shares in the transferee company,
except that cash may be paid in respect of any fractional
(iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee
(v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when
they are incorporated in the financial statements of the
transferee company except to ensure uniformity of
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(f) Amalgamation in the nature of purchase is an amalgamation which does not satisfy any one or more of the conditions
specified in sub-paragraph (e) above.
(g) Consideration for the amalgamation means the aggregate of the shares and other securities issued and the payment made in the form of cash or other assets by the transferee company to the shareholders of the transferor company.
(h) Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable,
willing seller in an arm’s length transaction.
(i) Pooling of interests is a method of accounting for amalgamations the object of which is to account for the amalgamation
as if the separate businesses of the amalgamating companies
were intended to be continued by the transferee company.
Accordingly, only minimal changes are made in aggregating the individual financial statements of the amalgamating...