amalgamation

 Q.What do you understand by the amalgamation of companies? Explain its merits and demerits. How many types are there? 

Introduction /meaning of merger

The present era is an era of competition, and every company strives to face this competition and prefers to work together. And if a company wants to do business with another company, then in that situation, it can merge with another company or acquire shares of another company. 

Types of merger 

(Merger) Merger is of the following two types: 

1. Amalgamation (Amalgamation) 

2. Absorption (Acquisition) 

1.Amalgamation:  In simple words, when two or more companies cease to exist and a new company is formed, it is called Amalgamation. 

2.Absorption: In simple words, when one or more existing companies cease to exist and a new company is not formed, it is called amalgamation. 

Amalgamation of any company occurs only when an existing company buys another existing company. 

Objectives of Amalgamation 

The main objectives of amalgamation are as follows: 

1. Reduction in costs: A major objective of amalgamation is to reduce costs. 

2. Making distribution easier: A major objective of amalgamation is to make distribution easier. 

Types of Amalgamation 

According to Accounting Standard 14, the main types of company amalgamation from an accounting perspective are as follows: 

1. Amalgamation in the nature of merger.

2. Amalgamation in the nature of purchase.

 

1. Amalgamation in the nature of merger: For amalgamation in the nature of merger, the following conditions must be met: 

(i) In case of amalgamation in the nature of merger At least 90% equity shareholders of the transferor company become shareholders of the transferee company. 

(ii) In the case of amalgamation in the nature of merger, the Pooling of Interest method is applied, which is a method of accounting. 

(iii) In the case of amalgamation in the nature of merger, the assets and liabilities of the transferor company are shown at their book value. 

(iv) In the case of amalgamation in the nature of merger, it is necessary to continue the business of the transferor company. 

(v) In the case of amalgamation in the nature of merger, the purchase consideration is paid by issuing shares. 

2.Amalgamation in the nature of purchase 

An amalgamation which is not in the nature of merger is called amalgamation in the nature of purchase. 

Qualities / Benefits /Advantages of Amalgamation 

1. Reduction in expenses: The first and most important benefit of amalgamation is that it leads to a reduction in management-related expenses. 

2. Making Distribution Easy: This is the second and most important benefit of integration, that it makes distribution easy. 

2. Reduction in Competition: This is the third and most important benefit of amalgamation, that it leads to a reduction in competition. 

3. Benefits of Large Scale: This is the fourth and most important benefit of amalgamation, that it leads to the attainment of large-scale benefits. 

Drawbacks/DisAdvantages of amalgamation 

The main drawbacks of integration are as follows: 

1. Problem of Over-capitalization: amalgamation leads to the problem of over-capitalization. 

2. End of Small Industrial Units: Small industrial units come to an end due to amalgamation.

3. Increase in Labor-related Problems: amalgamation leads to an increase in labor-related problems.