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Amalgamation ppt

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Amalgamation ppt

  1. 1. • Presented by: Vivek Agarwal
  3. 3. MEANING OF AMALGAMATION  The combination of one or more companies into a new entity.  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 name.  Thus, amalgamation results in the formation of a new (separate) company which has a unique name, logo, identity and existence.
  4. 4. EXAMPLE
  5. 5. EXAMPLES 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.
  6. 6. ADVANTAGES OF AMALGAMATION o Amount of capital can be increased by combining business. 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. o Expansion
  7. 7. 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.
  8. 8. FEATURES OF AMALGAMATIONS  Two or more existing companies are liquidated.  A new company is formed to take over the business of liquidating companies.  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.
  9. 9. 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
  10. 10. AMALGAMATION IN THE NATURE OF MERGER Is an amalgamation, which satisfies all the following condition:  All the assets and liabilities of vendor company become, after amalgamation, the assets and liabilities of purchasing company.  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 amalgamation.  The business of vendor company is intended to be carried on after the amalgamation, by purchasing company.
  11. 11. CONTI…..  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 purchasing company.
  12. 12. 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’
  13. 13. 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.
  14. 14. METHODS OF CALCULATING PURCHASE CONSIDERATION  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).
  15. 15. REFRENCES  Wikipedia Report, Meaning, advantage, disadvantage, features, types of amalgamation, purchase consideration, Retrieved from http://en.wikipedia.org/wiki/Amalgamation