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    Amalgamation, Absorption and Reconstruction

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    Archi Gupta
    When two or more companies merge into one new company it is called amalgamation. Absorption occurs when a stronger existing company takes over a weaker company. Reconstruction can be external, involving new shareholders, or internal, involving existing shareholders. The purchase consideration is the amount paid by the purchasing company for assets and liabilities, and can be calculated directly, based on net assets, or net payment. Accounting entries close the books of the purchased company by transferring assets and specified liabilities to a realization account, crediting the purchase consideration, and distributing remaining amounts to shareholders. The purchasing company makes opening entries on the agreement date and when payment is made.

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    Amalgamation, Absorption and Reconstruction

    Uploaded by

    Archi Gupta
    82 views8 pages
    When two or more companies merge into one new company it is called amalgamation. Absorption occurs when a stronger existing company takes over a weaker company. Reconstruction can be external, involving new shareholders, or internal, involving existing shareholders. The purchase consideration is the amount paid by the purchasing company for assets and liabilities, and can be calculated directly, based on net assets, or net payment. Accounting entries close the books of the purchased company by transferring assets and specified liabilities to a realization account, crediting the purchase consideration, and distributing remaining amounts to shareholders. The purchasing company makes opening entries on the agreement date and when payment is made.

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    When two or more companies merge into one new company it is called amalgamation. Absorption occurs when a stronger existing company takes over a weaker company. Reconstruction can be external, involving new shareholders, or internal, involving existing shareholders. The purchase consideration is the amount paid by the purchasing company for assets and liabilities, and can be calculated directly, based on net assets, or net payment. Accounting entries close the books of the purchased company by transferring assets and specified liabilities to a realization account, crediting the purchase consideration, and distributing remaining amounts to shareholders. The purchasing company makes opening entries on the agreement date and when payment is made.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    82 views8 pages

    Amalgamation, Absorption and Reconstruction

    Uploaded by

    Archi Gupta
    When two or more companies merge into one new company it is called amalgamation. Absorption occurs when a stronger existing company takes over a weaker company. Reconstruction can be external, involving new shareholders, or internal, involving existing shareholders. The purchase consideration is the amount paid by the purchasing company for assets and liabilities, and can be calculated directly, based on net assets, or net payment. Accounting entries close the books of the purchased company by transferring assets and specified liabilities to a realization account, crediting the purchase consideration, and distributing remaining amounts to shareholders. The purchasing company makes opening entries on the agreement date and when payment is made.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 8

    AMALGAMATION, ABSORPTION

    F.Y.B.Com
    AND RECONSTRUCTION
    F.Y.B.COM

    PROF. BHAGWAT A. B.
    S. M. JOSHI COLLEGE, HADAPSAR,
    1
    PUNE-28
     AMALGAMATION: When two or more companies
    go into liquidation and one new company is formed it
    is called amalgamation.
     ABSORPTION: When weaker company is taken over

    F.Y.B.Com
    by another existing stronger company it is called
    absorption.

     RECONSTRUCTION OF COMPANIES: It is of two


    types:-
    1. External reconstruction:

    2. Internal reconstruction
    2
     PURCHASE CONSIDERATION: It is the
    amount payable by purchasing company to the
    purchased company for taking over the assets
    and liabilities of that company.

    F.Y.B.Com
    Methods of calculating purchase consideration:

    1. Direct method.
    2. Net assets method
    3. Net payment method 3
     Accounting Entries: Closing journal entries in
    the books of the company.
    1. Transfer all the assets to realization A/C at
    their book value except cash/ bank if not

    F.Y.B.Com
    taken over by the company.
    2. Transfer only those liabilities taken to
    realization A/C.
    3. Credit the realization A/C with the amount of
    purchase consideration.

    4
    4. If there are any realization expenses paid by
    the company.
    5. Transfer Equity share capital, P& L A/C,
    General R- A/C, R-Fund to equity share

    F.Y.B.Com
    holders A/C
    6. For sale of assets for cash.
    7. When liabilities are paid which are not taken
    over by the company.
    8. Now close the realization A/C and find out
    profit or loss.
    5
    9. Further, pass the entry for receiving
    purchasing consideration.
    10. Finally, Equity shares from the company and

    F.Y.B.Com
    remaining cash will be transferred to equity
    share holders.

    6
    Opening entries in the books of new company.
     On the date of agreement when purchase
    consideration is agreed upon.

    F.Y.B.Com
     For incorporation of assets and liabilities.
     When amount of purchase consideration is
    actually paid.

    7
    F.Y.B.Com
    THANK YOU 8

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