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amalgamation entry

A/c entries 1875 views 1 replies

CA Kripa Sah

Chartered Accountant

254 Points Joined February 2009

Hi frnds!

Pls tell me the concept of this question-In case A&B gets amalgamated into new Co. C Ltd...and there exists inter Co. Investment among A&B ...then while computing Purchase Consideration(of lets say A in our Eg) on the basis of intrinsic value of their shares....We find Net Assets Taken Over by A(lets say)then we reduce it by market value of shares of A HELD BY B....Why do we reduce it??Whats the concept??(pls refer 2006 Final question in Accounts Compiler ...its taken from there)

I got confused bcoz in case where A Ltd absorbs B ltd then while computing P.C of B -from Net assets Taken Over we reduce MARKET VALUE OF SHARES HELD BY B in A Ltd..

Why there is such difference...Anyone pls help me!!

Replies (1)

CA SUDIPTA SINHA

Commerce Coaching- Accounts Cost FM

735 Points Joined January 2008

while two companies are amalgamating that means two companies are becoming single company. so if there exists any inter company investments that is to be wiped off. for example if A & B get amalgamated and A holds share in B then A is one of the shareholders of B ltd. now when they are amalgamated A shoul get the the proportionate net assets of B. its a liability to B and at the same time it represents the investment to A. when they become a single company then they can not appear in the books. thats why while calculating PC the MV of investment is deducted.

this is also same as in the case when A absorbs B.