**METHOD OF AMALGAMATION AS PER AS 14**
In order to provide a clear guideline for accounting for amalgamation, the Institute of Chartered Accountants of India has issued Accounting Standard 14 (AS-14) which deals with ‘Accounting for Amalgamation.’
AS-14 is effective since the accounting period beginning on or after 1.4.1995 and is mandatory in nature. The statement to these standard states that ‘Amalgamation’ means ‘an amalgamation pursuant to the provisions of the Companies Act, 1956 or any other statute which may be applicable to companies’. As per AS 14 there are two types of Amalgamation:
Amalgamation in the nature of Merger; and
Amalgamation in the Nature of Purchase.
Amalgamation in the nature of Merger
The amalgamations where there is a genuine pooling not merely of the assets and liabilities of the amalgamating companies but also of the shareholders’ interests and of the businesses of these companies, is called amalgamations in the nature of ‘merger’.
An amalgamation which satisfies all of the following conditions is considered as amalgamation in the nature of merger:
(i) All the assets and liabilities of the transferor company become the assets and liabilities of the transferee company.
(ii) Shareholders holding not less than 90 per cent of the face value of the equity shares of the transferor company (other than the equity shares already held therein immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation.
(iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares.
(iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company.
(v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies.
In this type of amalgamation (amalgamation in the nature of merger), there is a genuine pooling of assets and liabilities of the combining entities. In addition, equity shareholders of the combining entities continue to have a proportionate share in the combined entity.
Amalgamation in the Nature of Purchase:
An amalgamation is considered to be in the nature of purchase when any one or more of the five conditions specified for amalgamations in the nature of merger as stated above is not satisfied. In this type of amalgamation, one company acquires another company and the equity shareholders of the combining entities do not continue to have a proportionate share in the equity of the combined entity or the business of the company which is acquired is not intended to be continued after the amalgamation.
For example, X Ltd. acquires the business of Y Ltd. with no intention to continue such business, it is a case of amalgamation in the nature of purchase and not in the nature of merger. Similarly, if shareholders of Y Ltd. holding 90% or more of the share capital do not become shareholders of X Ltd., the amalgamation is in the nature of purchase. Further, if the assets and liabilities are recorded at revised values in the books of the transferee company, it is an amalgamation in the nature of purchase