Preparation of Balance Sheet after Amalgamation

Amalgamation is the process where two or more companies combine to form a single entity, either by merging into an existing company or creating a new one. It helps in achieving economies of scale, increasing market share, and eliminating competition. The two types are amalgamation in the nature of merger and amalgamation in the nature of purchase. It involves transfer of assets, liabilities, and business operations, with accounting treatment governed by AS-14 or Ind AS 103, depending on the method used.

After amalgamation, the transferee company needs to prepare a new Balance Sheet showing:

• Combined assets and liabilities

• Capital structure after issuing shares or paying consideration

• Goodwill or Capital Reserve, if any

• Any new reserves or adjustments (e.g., securities premium, statutory reserves)

Step-by-Step Process:

1. Pass Incorporation Journal Entries:

Here are the typical journal entries made by the transferee company during amalgamation:

• Add the transferee company’s own balances (if any) to the assets/liabilities taken over.

• Apply fair values or book values depending on whether it’s:

  • Merger → Book values (Pooling of Interests)

  • Purchase → Fair values (Purchase Method)

3. Account for Consideration

Record the purchase consideration issued:

• Equity Share Capital (at face value)

• Securities Premium (if shares issued at premium)

• Bank (if part consideration paid in cash)

4. Identify Goodwill or Capital Reserve

| Formula |

Purchase Consideration – Net Assets (Assets – Liabilities)

→ If positive → Goodwill

→ If negative → Capital Reserve

Format of Post-Amalgamation Balance Sheet (Transferee Company)

As per Schedule III of Companies Act, 2013:

Balance Sheet of XYZ Ltd. (Post-Amalgamation)

I. Equity and Liabilities

1. Shareholders’ Funds

   • Share Capital

   • Reserves & Surplus (incl. Securities Premium, General Reserve, Capital Reserve)

2. Non-Current Liabilities

   • Long-term Borrowings

   • Deferred Tax Liabilities

3. Current Liabilities

   • Trade Payables

   • Other Current Liabilities

   • Short-term Provisions

II. Assets

1. Non-Current Assets

   • Fixed Assets (Tangible/Intangible incl. Goodwill)

   • Long-term Investments

2. Current Assets

   • Inventories

   • Trade Receivables

   • Cash and Cash Equivalents

   • Short-term Loans and Advances

Example illustration:

Company A Ltd. absorbs B Ltd.

➤ Agreed Values Taken Over:

• Assets: ₹10,00,000

• Liabilities: ₹4,00,000

• Purchase Consideration: ₹7,00,000 paid by issuing equity shares (₹10 each at ₹10)

Journal Entries in A Ltd.’s Books: