Financial Accounting

Amalgamation

In an amalgamation, two or more companies are combined into one by merger or by one taking over the other.

Characteristics of Amalgamation

1. Two or more companies join together

2. One company continues, or a new company is formed.

3. Transfer of Assets and Liabilities

4. Shareholders get new shares

5. Helps in Business Growth

6. Recorded as per Accounting Rule

Two or more companies join together

Amalgamation happens when two or more companies decide to become one company.

One company continues, or a new company is formed

• Sometimes, one company takes over the other and continues.

• Sometimes, two or more companies join together, and a new company is formed.

Transfer of Assets and Liabilities

The new or continuing company takes over all the assets (like buildings, cash) and liabilities (like loans, dues) of the old companies.

Shareholders get new shares

The shareholders of the old companies get shares in the new or continuing company.

Helps in Business Growth

Amalgamation helps companies become bigger, reduce competition and use resources effectively.

Recorded as per Accounting Rule

The amalgamation must be properly recorded in the books of accounts in accordance with Accounting Standard-14 (AS-14).

Reconstruction

Reconstruction means reorganising a company’s capital structure or business structure to improve financial health, efficiency, or profitability.

It involves significant changes such as alteration of share capital, revaluation of assets and liabilities, amalgamation, or reduction of capital.

Internal Reconstruction

Done without liquidation of the company; capital structure is reorganised (e.g., reduction of share capital, revaluation of assets). The same company continues.

In Internal Reconstruction, no new company is formed. Adjustments are made through a Reconstruction Account or Capital Reduction Account, such as;

• Writing off accumulated losses or fictitious assets

• Reducing share capital

• Revaluating assets/liabilities