Free reserves Vs Capital Reserves
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
05 July 2010
Dear Sirs
A company has been merged with another company as per sections 391-394 of the Companies Act.Due to merger of the company the resulting company incurred some gain , which has been transferred to "General Reserve " of the comapny ( Note : the Scheme of merger suggest to transfer to the GR A/C)
Now my question is whether this gain is a free reserve which will be avvailable for dividend or It is a capital reserves for separate disclosure is required for the same.
Because now with clubbing with the general reserve it characteristic will automatically converts to free reserves.
Pl. guide me with supportings
A company has been merged with another company as per sections 391-394 of the Companies Act.Due to merger of the company the resulting company incurred some gain , which has been transferred to "General Reserve " of the comapny ( Note : the Scheme of merger suggest to transfer to the GR A/C)
Now my question is whether this gain is a free reserve which will be avvailable for dividend or It is a capital reserves for separate disclosure is required for the same.
Because now with clubbing with the general reserve it characteristic will automatically converts to free reserves.
Pl. guide me with supportings
05 July 2010
The concept behind merger and acquisition is towards utilization of national assets in an efficient manner to compete with world.
For example; whenever a unit is closed due to economic non-viability of its own; the other unit may acquire it so that not only that unit will run but attached benefits are derived by all
- for government - collection of excise duties, income-tax, vat etc.,
for shareholders - value of their shares,
for creditors - timely payments,
for employees - continued employment
Due to these reasons the provisions of merger are not subject to capital gains.
Whenever an amount is eligible for General Reserve it means these are available for distribution because there are no categories of general reserves.
For example; whenever a unit is closed due to economic non-viability of its own; the other unit may acquire it so that not only that unit will run but attached benefits are derived by all
- for government - collection of excise duties, income-tax, vat etc.,
for shareholders - value of their shares,
for creditors - timely payments,
for employees - continued employment
Due to these reasons the provisions of merger are not subject to capital gains.
Whenever an amount is eligible for General Reserve it means these are available for distribution because there are no categories of general reserves.
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