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MEANING OF AMALGAMATION
The combination of one or more companies into a new
During amalgamation, two or more companies willingly
come together to cooperate with each other and diversify
(expand) their business activities.
After amalgamation, two or more companies dissolve and
lose their individual existence, hence they no longer exist
anymore. However, they again re-establish themselves, but
now jointly, by forming a new company having a unique
Thus, amalgamation results in the formation of a new
(separate) company which has a unique name, logo,
identity and existence.
Two good examples of amalgamations are as follows:
Maruti Motors operating in India and Suzuki based
in Japan amalgamated to form a new company
called Maruti Suzuki (India) Limited.
Tata Sons operating in India and AIA Group based
in Hong Kong amalgamated to form a new
company called TATA AIG Life Insurance.
ADVANTAGES OF AMALGAMATION
o Amount of capital can be increased by combining
o Establishment and management cost can be reduced.
o Benefits of large scale production can be secured.
o Research and development facilities are increased.
o Monopoly in the market can be achieved
o Avoiding competitions.
o Increasing efficiency.
DISADVANTAGES OF AMALGAMATION
Business combination brings monopoly in the market,
which may be harmful for the society.
The identity of the old company finishes.
Goodwill of the old companies decrease.
Management of the company becomes difficult.
FEATURES OF AMALGAMATIONS
Two or more existing companies are liquidated.
A new company is formed to take over the business of
The nature of business of existing companies is similar.
Liquidating companies are called vendor companies and
the new company is called purchasing company.
Generally, purchase consideration is discharged by the
issue of equity shares of purchasing company.
TYPES OF AMALGAMATION
According to Accounting Standard – 14 ( AS-14 ) there is
two types of amalgamation.
Amalgamation in the nature of merger.
Amalgamation in the nature of purchase
AMALGAMATION IN THE NATURE OF MERGER
Is an amalgamation, which satisfies all the following
All the assets and liabilities of vendor company become,
after amalgamation, the assets and liabilities of
Shareholders holding not less than 90% of the face value
of equity shares of the vendor company become equity
shareholder of the purchasing company by virtue of the
The business of vendor company is intended to be
carried on after the amalgamation, by purchasing
The consideration for the amalgamation receivable
by those equity shareholders of the vendor
company who agree to become equity shareholders
of purchasing company wholly by the issue of
equity shares in the purchasing company, except
that may be paid in respect of any fractional shares.
Book value of assets and liabilities of vendor
company should be same shown in accounts of
AMALGAMATION IN THE NATURE OF PURCHASE
If anyone or more of the Amalgamation in the
nature of merger conditions are not satisfied in an
amalgamation, such amalgamation is called
‘Amalgamation in the nature of purchase’
WHAT IS PURCHASE CONSIDERATION?
Purchase consideration is the amount which is paid by
the purchasing company for the purchase of the business
of the vendor company.
In other words consideration for amalgamation means
me aggregate of the shares and other securities issued
and payment in cash or other assets by the purchasing
company to the shareholders of the vendor company.
It should not include the amount of liabilities taken
over by the purchasing company, which will be paid
directly by this company.
METHODS OF CALCULATING PURCHASE
Lump Sum Method. When the transferee company
agrees to pay a fixed sum to the transferor company, it is
called a lump sum payment of purchase consideration.
For example, if X Ltd. purchases the business of Y Ltd.
and agrees to pay Rs. 25,00,000 in all, it is an example of
lump sum payment.
Net Worth (or Net Assets) Method. According to this
method, the purchase consideration is calculated by
calculating the net worth of the assets taken over by the
Transferee company. The net worth is arrived at by
(Agreed value of assets taken over by the transferee
company - Agreed value of liabilities to be assumed
by the transferee company).
Wikipedia Report, Meaning, advantage,
disadvantage, features, types of amalgamation,
purchase consideration, Retrieved from