Accounting for Amalgamation, absorption and External Reconstruction of companies

In the Books of Vendor company/ wound up company

Sr. No. Accounting process & Journal Entries

1. Assets taken over by new/ purchasing company .
( 1. Transferred all assets at book value.
2. If company does not take over cash/ bank balance this should not be transferred.
3.The assets over here does not include Miscellaneous Expenses.)
e.g. – Preliminary Expenses
- Underwriting commission
- Expenses on issue of share & debenture
-Discount on issue of share & debenture
- Debit balance of P/L Account.
Realisation A/c ..................... Dr.
To Such Assets A/c.............. Cr.
(Being assets taken over by new company ltd.)
2. Liabilities taken over by new/ purchasing company
(share capital, Reserve and surplus , profit/loss should not be transferred to Realisation A/c )

Such Liabilities A/c .................. Dr.

To Realisation A/c ...................... Cr.
(Being assets taken over by new company ltd.)

3. 1. Equity Share capital transferred to Equity shareholder A/c,

2. All items of reserve &surplus transferred to equity shareholder A/c Credit
side.
3. All items of miscellaneous Expenses( Preliminary Expenses, Underwriting
commission, Expenses on issue of share & debenture, Discount on issue of share &
debenture, Debit balance of P/L Account.) transferred to equity shareholder A/c
Debit side.
1. Equity Share capital A/c ........................... Dr.
To Equity shareholder A/c...................... Cr.
(Being equity share capital transferred to equity shareholder A/c

2. Capital reserve .................................Dr.

Capital Redemption Reserve............ Dr.
General Reserve ...............................Dr.
Share premium.................................Dr.
Sinking fund ..................................... Dr.
Profit/Loss A/c ................................. Dr.
To Equity shareholder A/c ...................... Cr.
(Being Reserve & Surplus transferred to equity shareholder A/c
 3.
Equity shareholder A/c...................... Dr.
To Preliminary Expenses .................................. Cr.
To Underwriting commission ........................... Cr.
To Expenses on issue of share & debenture .... Cr.
To Discount on issue of share & debenture ...... Cr.
To Profit/Loss Account(Debit balance) .............. Cr.
(Being Miscellaneous Expenses transferred to equity shareholder A/c
4. Record of Purchase Consideration
New Co. / Purchasing co. Ltd A/c ...... Dr.
To Realisation A/c ..................... Cr.
(Being Recording of Purchase Consideration.)

5. How the purchase consideration has been discharged.

(Cash, Shares, Debentures or combination of all.)

Cash A/c .........................Dr.

Equity share A/c .............. Dr.
Debenture A/c ............... Dr.
To Purchasing Co. Ltd A/c ........... Cr.
(Being Purchase Consideration has been discharge of the purchasing co. Ltd.)

6. Liquidation Expenses may be

1. Paid by vendor Co. / old Co.
Realisation A/c .............. Dr.
To Bank A/c ......................Cr.
(Being liquidation Exp. Paid by vendor Co.)

2. Paid by vendee Co./ purchasing Co.

No Entry passed in the books of vendor Co/ old Co.

3. Paid by vendor co to be reimbursed by purchasing company.

i) Purchasing co. A/c ............... Dr.

To Realisation A/c ............. Cr.
(Being Amt Due)
 Bank A/c ............................... Dr.
ii) To Purchasing co. A/c ........... Cr.
(Being reimbursed by purchasing Company)

7. Assets not taken by purchasing company / new company.

1) Assets sold at profit-
Cash /Bank A/c ...............Dr.
To Such Assets A/c ............... Cr.
To Realisation A/c ..............Cr.(Profit)
(Being assets not taken by purchasing co. but it sold on profit.)

2) Assets sold at Loss-

Cash /Bank A/c ............... Dr.
Realisation A/c .............. Dr.(Loss)
To Such Assets A/c ............... Cr.
(Being assets not taken by purchasing co. but it sold on Loss.)

8. Liabilities not taken by purchasing company / new company. It is paid by

vendor Co.
Liabilities A/c............... Dr.
To Bank A/c...................... Cr.
(Being liabilities not taken over by purchasing Co..)

9. Bad debts, R.D.D. Transferred to Realisation A/c.

Bad Debts/ R.R.D. A/c ...............Dr.

To Realisation A/c ......................Cr.
(Bad debts, R.D.D. recover by old company)

10.  For Transferred of Debentures/Pref.Share to debenture holder A/c

/ Pref. Shareholder A/c.
Debenture/ Pref. Share Capital A/c ............... Dr.
To Debenture holder/Pref. Shareholder A/c........ Cr.
(Being Transferred of Debentures/Pref.Share to debenture holder A/c /
Pref. Shareholder A/c.)
  For payment of premium of debenture holders/pref. shareholders

Realisation A/c .............. Dr. (Premium)

To Debenture holder/Pref. Shareholder A/c........ Cr. (Premium)
(Being payment of premium of debenture holders/pref. shareholders.)

 For Discount to debenture holders/pref. shareholders

Debenture holder/Pref. Shareholder A/c ........ Dr. (Discount)
To Realisation A/c ........................................ Cr. (Discount)
(Being Discount to debenture holders/pref. shareholders.)

11. Realisation A/c is closed and profit or Loss is transferred to Equity shareholder
A/c.

i) Profit-
Realisation A/c .......................Dr.
To Equity shareholder A/c ......... Cr.
(Being Realisation Profit transferred to Equity
shareholder A/c.)

ii) Loss-

Equity shareholder A/c ......... Dr.

To Realisation A/c .................Cr.
(Being Realisation Loss transferred to Equity
shareholder A/c.)
 In the Books of Purchasing Company/ New Company
Sr. No. Accounting process & Journal Entries
1. On Amalgamation/Absorption of the business.
Business purchase A/c ................. Dr
To Liquidator of Vendor Company A/c ....... Cr

2. Assets And Liabilities taken over

Such Assets A/c .............. Dr
Goodwill A/c ................... Dr
To Such Liabilities A/c ......... Cr
To Business Purchase A/c……Cr
(If the total Credits excess total Debits the difference
is debited to Goodwill A/c)

Such Assets A/c ............. Dr

To Such Liabilities A/c ........... Cr

To Business Purchase A/c……Cr

To Capital Reserve A/c ......... Cr

(If the total Debits excess total Credits the difference

is Credited to Capital Reserve A/c)

3. Mode of Payment of Purchase consideration

(If Share/ Debenture allotment is made at Premium / a Discount)

Liquidator of vendor Company ........................... Dr

Discount On issue of Share ........................... Dr
Discount On issue of Debenture................... Dr
To Bank A/c
To Equity Share Capital A/c
To Pref. Share Capital A/c
To Debentures A/c
To Share Premium A/c
To Debenture Premium A/c

4. Liquidation Expenses paid by vendor company.

Goodwill A/c / Capital Reserve........... Dr

To Bank A/c .................................... Cr
IMPORTANT POINTS:-
1. Only the assets & Liabilities taken over by the purchasing Company should be
transferred to Realisation A/c. at book values or balance sheet values.
2. No fictitious Assets should be transferred to Realisation A/c.(i.e. Preliminary
Expenses, Underwriting commission, Expenses on issue of share & debenture,
Discount on issue of share & debenture etc.)
3. Goodwill and other intangible assets such as Trade Mark, Patent Rights are
transferred to Realisation A/c only when they are taken over by the purchasing
company.
4. Cash and Bank Balance is transferred to Realisation A/c only when it has been
taken over by the purchasing company.
5. All funds accounts (Reserve& Surplus, profit & Loss )Should be transferred to Equity
Share holder Account.
6. Reserve for doubtful debt and other provision if any are separately recorded in the
realization A/c and not to be netted off against the respective assets. (i.e. Debtors
to be recorded at gross figures.)
  Asset taken – T/F Realisation A/c Dr.side
 Liab taken – T/F Realisation A/c Cr.side
 Reserve &Surlus – T/F Shareholder A/C Dr. Side
 Misc. Exp. - T/F Shareholder A/C cr. Side
 Record of P.C. - T/F Realisation A/c Cr.side
New Co.Dr,Side
 Discharge Of P.C. - New Co. Cr.Side
 Liquidation Exp. - T/F Realisation A/c Dr.side
 Bank A/c Cr. Side
 Assets Sold - Cash A/c Dr.Side
Realisation A/c Cr.side (Pr)
(Loss Opposites entry)

 Liab Paid - Bank A/c Cr. Side

 R.D.D. - T/F Realisation A/c Cr.side
Realisation A/c
Shareholder A/c
Cash A/c