Discharge of debenture holders during amalgamation

AS 1560 views 3 replies

Prachi Srivastava

Finance

368 Points Joined November 2011

Hi All,

This query is from book "first lessons in FInancial reporting" from MP Vijaykumar.Problem 20.

In this problem, in question it is given--" The preference shareholders and Debenture holders are to be satisfied by issue of similar instruments in amalgamated(Purchasing) company.In solution, Preference dividend and Debenture interest from Subsidiary company(amalgamating/selling company) is considered as revenue for Purchasing company.

Can anyone please explain how this will be a revenue for purchasing company. As per my understanding, now since Purchasing company is issuing Preference shares and debentures, they should be paying dividend and interest in place of selling company.So it should be an expense,not revenue.

I have been struggling with this concept for many days now. I will be very thankful if you can help me with this.

Replies (3)

Sudhir

article assistant

23 Points Joined November 2014

So in prblm no. 19 ...u r ok with purchasing co. Receiving dividend from selling company for equity shares....just treat pref shares and debentures of selling company also same like equity shares....after all purchasing company is nothing but 100% shareholder of selling company....so shareholder receives dividend..as simple as that....moreover as u asked in question ...it shud be an expense....if u analyse answer....if is also an expense but at the same time revenue also...revenue from shares and debentures in selling company... Expense for paying to share & debentures holders of selling company...

I too have a doubt on this prblm...whether it amalgamation in nature of merger of purchase as new debentures isued are of similiar terms

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

I guess during acquisitions, many ppl raise additional capital. You own 100 Debentures, you need to be compensated and so the aquirer can issue you similar instruments of new company and you can earn your dividend or interest from acquired company operations. This looks like an arrangement.

yasaswi gomes

My grammar is 💯 good I

7296 Points Joined March 2019

Or when a company partially takes over without full control over it, they get dividends or nci share of profits from the subsidiary. Please paste the whole question for further clarity.