Accounting for Amalgamations
Amalgamation is the process of combining or uniting multiple entities into one form. It is the union of two or more companies, made with an intention to form a new company. It is a deal or an agreement between two or more companies to strengthen their business activities by establishing a new company having a separate legal existence. To amalgamate means to unite or combine or blend. It is an act or process in which two or more things fuse together to form a new potent thing. It is an emerging trend in today’s business world which results in the formation of a new, strong, stable and large company. it is also results in the growth and expansion of this newly formed company.
Methods of Accounting for Amalgamations
There are two main methods of accounting for amalgamations.
- Pooling of interest Method: under this method, the assets liabilities and reserves of the transferor company are recorded by the transferee company at their existing carrying amounts. If at the time of amalgamation, the transferor and the transferee companies have conflicting accounting policies, a uniform set of accounting policies is adopted following the amalgamation.
- Purchase Method: under the purchase method, the transferee company accounts for the amalgamation either,
v By incorporating the assets and liabilities at their existing carrying amounts or
v By allocating the consideration to individual identifiable assets and liabilities of the transferor company on the basis of their face values at the date of amalgamation. The identifiable assets and liabilities may include assets and liabilities not recorded in the financial statements of the transferor company.
What is consideration for Amalgamation?
It 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. Many amalgamations recognize that adjustments may have to be made to the consideration in the light of one or more future events. When the additional payment is probable and can reasonably be estimated at the date of amalgamation, it is included in the calculation of the consideration.
Amalgamation is a process by which a new company is being formed with a new intention of doing business. The newly formed company will have a separate identity, name, logo and existence. The management of amalgamated company is led by members of two or more companies getting amalgamated. For more information regarding amalgamation you can always contact experts at Emirates Chartered Accountants Group. Our Email firstname.lastname@example.org