Urgent: merger

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

09 April 2013 holding shares in company A, Company A merged with company B, how to show it in books of sharreholders of A. how to calculate profit or loss.

urgent

Querist : Anonymous

Querist : Anonymous (Querist)

09 April 2013 someone pls reply

Querist : Anonymous

Querist : Anonymous (Querist)

25 April 2013 Chartereds pls reply

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 Here’s an urgent and clear explanation on how shareholders of Company A should account for the merger with Company B in their books and calculate profit or loss:

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## Accounting Treatment for Shareholders of Company A on Merger with Company B

### 1. **Nature of Merger**

* Usually, in a merger, Company B absorbs Company A.
* Shareholders of Company A receive shares of Company B in exchange for their shares in A.
* This is a **share swap** transaction.

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### 2. **What to Record in Shareholder’s Books**

#### Step 1: **Remove Investment in Company A Shares**

* Remove the cost of original investment in Company A shares from your books.

#### Step 2: **Record New Investment in Company B Shares**

* Record the new shares of Company B received at their **fair value** or **agreed exchange ratio value**.

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### 3. **Calculation of Profit or Loss**

* **Profit or Loss on Merger** =
(Fair Value of shares received in Company B) – (Book value / Cost of shares held in Company A)

* If the fair value of Company B shares received > cost of Company A shares, you have a **profit** (capital gain).

* If less, then **loss**.

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### 4. **Accounting Journal Entry for Shareholders**

| Particulars | Debit | Credit |
| ---------------------------------- | ---------------- | ---------------- |
| Investment in Company B shares | XXX (fair value) | |
| To Investment in Company A shares | | XXX (cost) |
| To Capital Gain on Merger (if any) | | XXX (difference) |

* If loss, debit loss account instead of credit capital gain.

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### 5. **Tax Implication**

* Under **Income Tax Act (Section 47)**, certain mergers are **not treated as transfer** (i.e., exempt from capital gains) if conditions under **Section 2(1B)** are satisfied.
* Check if merger qualifies as a **tax-neutral scheme**.
* If yes, **no capital gains tax** is payable immediately.
* Otherwise, capital gain arises on difference between value received and cost.

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### Summary Checklist for Shareholders:

* Determine exchange ratio and value of Company B shares received.
* Remove investment in Company A shares from books.
* Record investment in Company B shares.
* Calculate gain/loss and record in Profit & Loss or capital reserves as applicable.
* Check tax provisions for exemptions.

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If you want, I can help you with a **worked example** or **tax analysis** based on your exact case details. Just share the numbers!

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