meaning of integration
Amalgamation means the amalgamation of two or more companies for some common purpose and the formation of a new company. In other words, when two or more existing companies carrying on the same business are dissolved and a new company is formed to buy out their business.
As per Accounting Standard 14, amalgamation can be done by the merger of an existing company with another existing company or by the merger of two or more companies to form a new company. Thus, as per Accounting Standard 14 (AS-14), amalgamation has been included in amalgamation for the purpose of accounting. The company which is amalgamated in another company is called transferer company or vendor company and the company in which any transferee company or companies are amalgamated is called transferee company or buyer company. (Purchasing Company).
purpose of integration (Objects of Amalgamation)
The main objectives of integration are as follows-
(1) To put an end to the complex competition among themselves.
(2) To bring economy in the cost of conducting business.
(3) To increase the production and improve the variety.
(4) Ease of sale and distribution of produce.
(5) To get the services of experts.
(6) To make it possible to use automatic machines.
(7) To get the benefits of doing business on a large scale.
(8) Make efficient use of resources.
benefits of integration
The following are the major advantages of (Merits of Amalgamation) integration-
1. Reduction in Competition – The mutual competition between the companies is reduced.
2. Reduction in expenses of a permanent nature – There is a reduction in the administrative and establishment related expenses.
3. Benefits of large scale- With the increase in the size of the business, the expenses of production on a large scale are reduced and the possibility of profit increases.
4. Controlling Function Ease- Through integration, the control function becomes easy and the business There is uniformity policy of
5. Advantages of Monopoly- The benefits of monopoly are obtained when mutual competition is over.
6. The size of capital increases by more capital integration.
7. Facilitation in Marketing – As a result of integration, there is convenience in marketing of goods.
8. Use of New Inventions – As a result of integration, there is a need for new inventions in the organization Chances increase.
Disadvantages or Defects of Integration
The disadvantages of integration can be explained as follows:
1. Difficulty in managerial control – control due to increase in the size of the business Difficulty ensues go enough in.
2. Possibility of over-capitalization Due to integration, defects of over-capitalization arise in the institution.
3. Dissolution of Small Industrial Units- Due to integration, small industrial units get destroyed.
4. Promotion of industrial conflicts- Labor problems and conflicts increase due to integration
5. Defects of Monopoly arising – Due to integration, defects of monopoly arise.
type of integration
For the purpose of accounting, integration in Accounting Standard-14 (AS-14) is divided into the following two parts-
Amalgamation in the Nature of Merger An amalgamation in the nature of merger is considered when the first five conditions described in AS-14 are satisfied Huh.
(i) After amalgamation, all the assets of the transferor company (seller company) and the liabilities become the assets and liabilities of the transferee company (buyer company). (ii) if the transferee (buyer) company or its subsidiaries or their nominees held equity shares of the transferor (seller) company before the amalgamation, at least the face value of their equity shares in addition to the equity shares so held 90% Equity Shareholders After amalgamation, the transferee (buyer) becomes equity shareholder of the company.
(ii) equity shareholders of the transferor (seller) company, if the transferee (buyer) is an equity shareholder of the company
If the transferee (buyer) company agrees to become a shareholder, the purchase consideration will be paid in its equity.
by issue of shares, except in cash to be paid for fractional shares.
(iv) Business of the transferor (seller) company by the transferee (buyer) company after amalgamation
intend to drive. (v) After the assets and liabilities of the transferor (seller) company have been amalgamated in the financial disbursements of the transferor (buyer) company, the book value of the assets and liabilities of the transferor (seller) company should not be adjusted i.e. at book value only. to be shown (adjustments may be made in case of discrepancy in accounting policies).
Amalgamation in the Nature of Purchases
If any one or more of the above five conditions mentioned in the amalgamation in the nature of merger
If the conditions are not fulfilled, the amalgamation will be considered to be in the nature of purchase. In this type of amalgamation, the purchase of another company is done by one company and the purchase consideration is paid in accordance with mutual agreement or in any proper manner, either in shares or in debentures or in cash or any of these. Can be done in one or all forms.
Compare types of integration
The comparative position or difference between the two types of integration can be explained as follows:
1. In case of merger amalgamation, one company merges with another company and both Companies continue to exist, whereas in the event of a purchase, one company is bought by another company Due to which a company ceases to exist.
2. In case of amalgamation in the nature of merger, equity shares are given to the shareholders of the transferor company on the basis of the fixed exchange value and the ownership of these shareholders remains in the company, whereas in case of amalgamation of purchases, the transferee company will pay the purchase consideration. After the payment is made to the shareholders of the transferor company in cash, debentures or cash, they do not have any ownership in the transferee company.
3. In case of amalgamation in the nature of merger, the shareholders of both the companies have the right to participate jointly in the operation and management of the company whereas in case of amalgamation in the nature of purchase, the right to participate in the management and operation of the company only Transfer is to the shareholders of the company, not to the shareholders of the transferee company.
4. In amalgamation of the nature of merger all the accruals of the transferor company are included in the financial statements of the transferee company whereas in the amalgamation of the nature of purchase only the statutory accumulations; For example, only development allowance accumulation, appropriation allowance accumulation etc. are required to be included in the financial statements of the transferee company while other accruals are not shown.
Difference between Pooling of Interest Method and Purchase Method
The difference between these two methods of accounting can be explained as follows:
(1) Grouping of interests method is used in case of integration of merger nature whereas purchase method is used in case of integration of purchasing nature.
(2) In the interest grouping method, the amount of the difference between the purchase consideration (in the form of equity share capital and cash) and the share capital of the transferor company is transferred to the general reserve whereas in the Jay method the purchase consideration (in the form of equity share capital, The difference between the net value of the assets acquired by the transferee company is transferred to goodwill or capital accumulation account.
(3) There is no need to open ‘Amalgamation Adjustment Account’ in Grouping of Interests method whereas ‘Consolidation Adjustment Account’ is required to be opened in the books of transferee company for accounting of statutory accruals in purchase method.
(4) In grouping of interests method, the assets and liabilities of the transferor company are displayed in the books of account of the transferee company at ‘book value’ while in the purchase method at ‘book value’ or ‘fair value’ .
(5) In the interest grouping method, the profit and loss balance and all the reserves of the transferor company are mentioned in the books of the transferee company whereas in the purchase method only the statutory reserves are mentioned.
Calculation of Purchase Consideration In integration, the purchase price can usually be calculated by any one of the following methods –
(1) Net Payment Method: In this method, the purchase consideration is calculated by aggregating all the payments being made by the buying company in its shares, debentures or cash. In this, no amount is deducted for computing the purchase consideration and all the amount paid to the shareholders is included. As per Accounting Standard-14, purchase consideration means payment made only to the shareholders, it shall not include the purchase consideration paid by the purchasing company to the debenture holders or other liabilities. This method should be used only when the payments being made to the shareholders are clearly mentioned in the question. This can be explained by the following formula-
Money Considerations Issued Shares Issued Debentures Cash Payment (2) Net Assets Method Under this method the purchase price of all the real assets purchased by the purchaser company is calculated by deducting the amount of liabilities accepted. Is performed. This can be explained by the following formula purchase consideration net assets
Net Assets Accepted Assets Accepted Liabilities Accepted
The following points are to be kept in mind while computing the purchase consideration on the basis of net asset method:
(i) The purchase prices of all the properties accepted by the Buying Company as per the agreement should be added. No attention should be paid to its book value. (ii) The assets which have not been purchased by the buying company shall be included in the calculation of purchase percentage should not be done.
(iii) If the balance sheet contains artificial or fictitious assets, they should also not be included in the total of the assets. For example, initial expenditure, profit-loss statement (debit balance), cost of issue of shares and debentures, advertisement expenses etc.
(iv) The value of the liabilities accepted by the buying company should be added up and the liabilities which are not accepted by the buying company should not be included in the calculation of purchase consideration.
(v) if it is not clear in the question what liabilities have been accepted by the buying company and Which obligations have not been accepted, then in such a case the value of all liabilities including debentures Yoga should be done.