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Jhimmi Singh (Querist)
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17 August 2016 amalgamation entry in the books of transferor company sometimes transferee co is debited and all assets and liabilities are cancelled but in some questions transferee co is not debited how come this

Jhimmi Singh

Jhimmi Singh (Querist)
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18 August 2016 pl help me

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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14 July 2024 In amalgamation accounting, the treatment of entries in the books of the transferor company and the transferee company can vary based on the type of amalgamation and the accounting method chosen. Here’s a breakdown of the two common scenarios you mentioned:

### Scenario 1: Transferee Company is Debited

In some cases of amalgamation, particularly in a **Purchase Method**, the transferee company (acquiring company) may debit its accounts to record the acquisition of the assets and liabilities of the transferor company. This method is used when:

- The amalgamation is treated as a purchase of assets and liabilities.
- The transferee company is seen as acquiring the business of the transferor company.
- The transferee company recognizes the assets acquired and liabilities assumed at their fair values.

**Journal Entry in Transferee Company (Purchase Method):**
```
Assets of Transferor Company Account Dr.
Liabilities of Transferor Company Account Dr.
To Cash/Bank (or Equity Shares issued) Account
```
- **Assets of Transferor Company Account:** Debit to recognize the fair value of assets acquired from the transferor company.
- **Liabilities of Transferor Company Account:** Debit to recognize the fair value of liabilities assumed from the transferor company.
- **Cash/Bank (or Equity Shares issued) Account:** Credit to reflect the consideration paid to the transferor company.

### Scenario 2: Transferee Company is Not Debited

In other scenarios, especially in an **Amalgamation in the Nature of Merger** or **Pooling of Interests Method**, the transferee company does not debit its accounts. Instead, the assets and liabilities of the transferor company are directly transferred to the transferee company’s balance sheet without affecting the equity or cash/bank accounts directly.

**Journal Entry in Transferee Company (Pooling of Interests Method):**
```
Assets of Transferor Company Account Dr.
Liabilities of Transferor Company Account Cr.
```
- **Assets of Transferor Company Account:** Debit to recognize the assets acquired.
- **Liabilities of Transferor Company Account:** Credit to recognize the liabilities assumed.

In these methods, the focus is on combining the financial statements of both companies as if they had been one entity from the beginning, without recording the transaction as an acquisition.

### Explanation for Not Debiting Transferee Company

The decision not to debit the transferee company depends on the accounting treatment chosen for the amalgamation:

- **Legal Form vs. Substance:** If the amalgamation is seen as a legal merger or pooling of interests where no purchase consideration is given, the focus is on combining the operations and financials rather than recording a purchase transaction.

- **Regulatory and Accounting Standards:** Different jurisdictions and accounting standards may prescribe different methods for amalgamation accounting, influencing whether the transferee company is debited or not.

### Conclusion

The treatment of amalgamation entries in the books of the transferor and transferee companies varies based on the method of amalgamation chosen (purchase method vs. pooling of interests method) and the specific circumstances of the amalgamation. In the purchase method, the transferee company is typically debited to reflect the acquisition of assets and liabilities. In other methods like pooling of interests, the transferee company’s books may not reflect a debit entry as the focus is on combining financial statements without treating the transaction as a purchase. The choice of method depends on legal, regulatory, and accounting considerations applicable to the specific amalgamation scenario.

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