demerger of companies

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ABHINANDAN JAIN (Querist)

11 January 2010 when a shareholder receives shares on demerger of companies, then what will be the accounting treatment for that in the books of shareholder as an investor?

Jag Bhushan Sharma

Jag Bhushan Sharma (Expert)

11 January 2010 In principle the investor has just swaped his investments. Hence he will debit the investment in new company and credit the investment in old company with the same old price if there is no change in the value of the investment. In case the market value of new shares is less than the previous shares then P&L A/c will be debited with the balancing figure.

ABHINANDAN JAIN

ABHINANDAN JAIN (Querist)

11 January 2010 why not we treat the shares received after demerger from resulting co as purchase consideration just like bonus share recived from comopanies, pls justify ?

Aditya Maheshwari

Aditya Maheshwari (Expert)

11 January 2010 Normally the company issuing shares i. e. the demerger company issues the ratio in which the shares of both the companies should be divided is given

ABHINANDAN JAIN

ABHINANDAN JAIN (Querist)

11 January 2010 aditya sir, i want to know the accounting treatment in shareholders portfolio

Aditya Maheshwari

Aditya Maheshwari (Expert)

11 January 2010 Shares in A Ltd A/c Dr
to Shares in B Ltd. A/c

The entry should be made at the ratio of demerger as provided by the company

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