Here i would like to share some important points on amalgamation from the view points of exam.Please make a note i have cover only that poitns where the possiblites of making mistake is high. So it doesnot include all points. Further, you will understand the below points only if you have completed the Amalgamation and doing your revision work.I have used many shortcut that i have prepared for my exam.Some points to be taken in consideration for Amalgamation from Exam point of view;
1) First of all check out the method of accounting, if it is a 'Pooling of Interest' Method then make sure that you do not forget to make a working calculation to calculate the Reserve and Surplus.
2) If A and B company is getting merged for the formation of C company then please make a note of following points;
Suppose there is excess of PC over Paid up capital in A only, NO
excess arise in B company.
>> Calculate the excess of PC over the Paid up capital and deduct the same from the Reserve and surplus of A
>> If after deducting still balance being left, then deduct the same from the reserve and surplus of another company that is B. Remember the remaining balance will be shown in balance sheet, but for the shake of journal entry you dnt have to consider the reserve and surplus of B company.
3) Exchange ratio would be determined by following formula;
Buyers / Sellers that is;
If echange ratio is based on EPS then it will be
Buyers EPS/ Seller EPS x No of share of Selling company.
Suppose A company is being acquired by B comapny, that is B company is buyer and A company is seller
Exahnged ratio based on the Internal value
A Company : RS 60
B company : 120then ratio would be 120/60 that is 2 share of A company for every 1 share of B company
4) In case of Investment by purchasing company in selling company:
Journal entry would be same as basic amalgamtion except;
1) There will be one extra entry that is
Share Capital A/c Debit
To Realization A/c Credit
(Being entry for inter company investment)
2) The Investment by purchasing company in selling company would be credited that is
Assest (Excluding Inter company investment)/c DebitInvestment (Outside Investment, if any) a/c Debit
Good will (balancing figure) Debit
To Liablities a/c Credit
To Business Purchase a/c CreditTo Investment in Selling company a/c (Book value) Credit
To Capital Reserve a/c Credit
3) In case of Inter- company investment, first of all identified the company without any investment or the company which is a subsidiary company with investment by holding company and start the problem with that company.This is because since it doesnot have any investment, you can easily calculate the internal value and then using this internal value you will calculate the other value. For example:
Particualrs X Y
Assets xxx xxx
Investment of Y Nil
Investment of X in Y
(Investment x Internal value
calculated below in Y)
Others xxx xxx Total XXX XXX
Liablities xxx xxx
Net Assest XXX XXXDivided by No of shares xxx xxx
Internal value xx
That is the investment of purchasing company will be valued at the internal value of selling company so first find out the value of selling company and then find the purchasing company investment.
Other points will be update by me soon...till that time you can refer the Amalgmation notes by Prime Academy M.P Vijay Kumar's book Financial Reporting Revised Scheduled VI notes at below link:http://primeacademy.com/pdfs/advaccchapter1.pdf