Merger or purchase method ???

Hi Freind 

i hope following information will help u in this regard

                                                              Amalgamation

 1. Points to be satisfied to treat the amalgamation in the nature of merger

All assets and liabilities of transforer is to be taken over at their book

· All or at least 90% of the Share Holding of Amalgamating Company must

be the Share Holders of Amalgamated Company.

· Equity shares of selling company must be given only equity shares of

purchasing company.

· Liabilities of Transferor must not be discharged; it must be taken over by

the resulting company. But exemption is the fraction shares can be given

in cash.

· Same risk and return and nature of company must be same.

2. Order of Adjustment of consideration is first General Reserve and then P & L a/c.

If the problem has statutory reserve it should not be adjusted. It is carried over as

such.

3. As per SEBI guidelines, underwriting commission is 2.5% on equity shares and

on 1st 5000 Preference Shares it is 1.5% and the balance Preference Shares it is

1%.

4. Capital employed is considered as Net Revaluation amount of Tangible Asset.

5. In case purchasing company holding shares in selling company, Net asset method

is applied as usual and outside shareholders portion is calculated separately as

balancing figure.

6. If in the above case, settlement of equity share holding of selling company is

given then that exchange pertains to outside share holder’s settlement and it

should not be splitted.

7. In the books of selling company the shares held by the purchasing company must

be cancelled by transferring it to realization a/c

Equity share capital a/c Dr

To Realization

8. If Preference share holders of selling company is discharged by preference share

holders of purchasing company at premium then the premium portion must be

transferred to realization a/c in the books of selling company.

9. In case of Merger while drafting Journal Entry in the books of purchasing

company for Incorporation of Asset & Liability in the workings, the consideration

is aggregate consideration including shares already purchased by purchasing

company and current purchase payable.

10. In case of merger in the books of purchasing company while calculation excess /

shortage to be adjusted against the reserve of selling company. The purchase

consideration is aggregate consideration including amount already paid (shares of

selling company held by purchasing company) + amount now paid (amount paid

to outsiders).

11. Business purchase in case of shares of selling company held by purchasing

company is the amount given to outsiders only.   

I think merger method will be applied.