Amalgamation in the nature of Merger AS 14 prescribes fulfilment of five conditions:

All the assets and liabilities of the transferor company become

the assets and liabilities of the transferee company. Shareholders of the transferor company holding not less than 90% of the face value of equity shares, including subsidiaries, become the shareholders of the transferee company Consideration payable to the shareholders of the transferor company should be paid through issue of shares in the transferee company. Fractional shares, if any, can however be paid for in cash. Transferee has the intention of carrying on the business of the target The assets and liabilities of the transferor company are incorporated into the balance sheet of the transferee company. Also the assets and liabilities should be shown using uniform accounting policies.

AS 14 states following features under pooling of interest method: The assets, liabilities, and reserves of the transferor should be recorded at the value appearing in the books of accounts and in the same form as on the date of amalgamation. Balance in the profit and loss account be transferred to the general reserves If purchase consideration is less than the paid up capital of the transferor company the difference be recorded as capital reserves. Accounting policies should be uniform Difference in the purchase consideration and the amount of share capital of the transferor be adjusted in reserves and no goodwill or capital reserves be shown in the books of accounts

Shareholders of the company which is acquired do not continue to possess interest in the equity of the combined entity in a proportion they held the shares in the liquidated company Salient features are:
The assets and liabilities of the transferor company at their

values on the date of amalgamation Non-statutory reserves, both capital and revenue, of the transferor company are not included in the financial statements of the transferee company If the purchase consideration exceeds the net assets value, is recorded as goodwill. The amount of goodwill should be amortized over a period not exceeding 5 years, unless a longer period can be justified

 If the purchase consideration is less than the net

assets value, is recorded as capital reserves. Where statutes require statutory reserves to be recorded in the financial statements of the transferee company, the statutory reserves are credited and Amalgamation Adjustment Account is debited. Account shown under Miscellaneous Expenditure on the assets side of the balance sheet If at a later stage this amount is no longer required then a reverse entry should be passed.

Non Cash Consideration:

Purchase consideration may be discharged through

cash and non-cash elements. Non cash element includes securities or other non-cash elements. While these elements are being recorded, the following aspects have to be kept in mind:
Non-cash component valued at fair value In case of securities, fair value is one fixed by statutory authorities For other assets, fair value is the market value of the assets Where market values cannot be reliably assessed, assets valued at respective net book value

Future Events:
Consideration may be payable at future date

and subject to occurrence of one or more future uncertain events

All events that are probable and where the

amount can be estimated, the same should be included

On all other cases, the amount should be

recorded as soon as it is determinable.

Treatment of Reserves: In certain cases of amalgamation, the approval of the court needs to be obtained Court is empowered to impose conditions so that the scheme of amalgamation is fully and effectively carried out Order might include conditions pertaining to treatment of reserves after amalgamation These need to be adhered to under all circumstances.

Focus of Coverage: Applied even when a segment or a profit centre of one entity is acquired by another entity The acquiree company may continue to exist as a legal entity. Types of Combinations: Covers transactions between shareholders of two independent entities or between entity and shareholders of another that result in: Purchase of either the equity or Part or whole of the assets or Assumption of liabilities or New entity or restructuring of one or more of the combining entities Purchase consideration may be paid either through equity or cash or both.

Measurement of Cost: The acquirer measures the cost of business combinations as an aggregate of: Fair values of assets taken over Value of liabilities assumed and Equity instruments issued by the acquirer in exchange for control Any additional cost directly incurred for the business combination Measurement of Consideration: The consideration is measured in terms of the carrying amount of the elements stated above. If the carrying amount and the fair value differ, then the difference be recognized as profit or loss.

Allocation of Cost:
Cost of the business should be allocated by recognizing the

identifiable assets, liabilities, and contingent liabilities that satisfy the recognition criteria i.e. whose fair value can be determined. If non-current assets held for sale are acquired - the same should be recognized at fair values less disposal costs.

Fair value of assets and liabilities determined on the following basis:

Tangible Assets: Probability of future economic benefits in accruing to the acquirer and reliable measurement of fair values Liabilities: Probability of outflow of economic benefits in future and reliable measurement of fair values Intangible Assets: Reliable measurement of fair values Contingent Liabilities: Reliable measurement of fair values. In case where fair values cannot be measured, the cost will be recognized as goodwill.

Accounting for restructuring costs:

Recognized only when the conditions for recognition

are satisfied as per the accounting principles laid down in IFRS 3.

Concept of Provisional Fair Values:

If at the end of the first reporting date, the acquirer is

unable to determine the fair value of the assets and liabilities acquired, the same can be accounted for on the basis of provisional fair values. These are then to be crystallized over a twelve month period and are reflected as goodwill on a retrospective basis.

Measurement of Goodwill:
Excess of cost of acquisition over the fair value of net

assets

Contingent Liabilities: If contingent liabilities assumed and recognized at fair values subsequently become liabilities, it is measured at higher of: The initial value at which the same was recognized Value if the amount had been recognized as per IAS 37 Deferred Tax Assets: May not be able to recognize a deferred tax asset pertaining to tax loss carry forward at the time of combination. If at a subsequent date the deferred tax materializes, amount so realized recognized as a gain in P/L Goodwill be correspondingly reduced from P/L

Thank you!