Amalgamation Definition

Table of Contents


An amalgamation is the combination of two more companies into a larger single company.

In accounting an amalgamation, or consolidation, refer to the combination of financial statements. For example, a group of companies reports their financials on a consolidated basis which includes the individual statements of several smaller businesses.

Examples: as follows

  • Maruti motors operating in India and Suzuki based in japan amalgamation to form a new company called Maruti Suzuki (India) Limited.
  • Tata sons operating in India and AIA group based in hong kong amalgamation to form a new company called TATA AIG life insurance.
  • Year-2002 Asian acquired 50.1% controlling stake in Berger international. Deal Rs 57.6 crores Berger international has no operation in India but formed Berger paints ltd. In Calcutta (subsidiary) objective: inter into the southeast Asian market, growth. Such as Singapore, Thailand, Myanmar, Bahrain, Malta, USA, Jamaica, Barbados and Trinidad, and Tobago.
  • 2002 pharmacy market Ranbaxy (RLL) helps to understand japan’s regulatory framework and market environment, product advantage.

Types of amalgamation

According to accounting standard-14, there are two types of amalgamation.

  1. Amalgamation in the nature of merger
  2. Amalgamation in the nature of purchase.


Amalgamation in the nature of merger:

  • All the assets and liability of the vendor company become, after amalgamation, the assets, and liabilities of the purchasing company.
  • Shareholder holding not less than 90% of the face value of equity shares of the vendor company became an equity shareholder of the purchasing company by virtue of the amalgamation.
  • The business of vendor company is intended to be carried on after the amalgamation, by purchasing company.
  • The consideration for the amalgamation receivable by those equity shareholders of the vendor of the purchasing company wholly by the issue of equity shares in the purchasing company, except that, maybe paid in respect of any fractional shares.
  • Book value of assets and liabilities of the vendor company should be the same shown in accounts of the purchasing companies.

Amalgamation in the nature of purchase:

This method is considered when the conditions for the amalgamation in the nature of the merger is not satisfied. Through this method, one company is acquired by another, and thereby the shareholders’ of the company which is acquired normally do not continue to have a proportionate share in the equity of the combined company or the business of the company which is acquired is generally not intended to be continued.

What is purchase consideration??

Purchase consideration is the amount which is paid by the purchasing company for the purchase of the business of the vendor company.

In other words, consideration for amalgamation means the aggregate of the shares and other securities issued and payment in cash or other assets by the purchasing company t the shareholders of the vendor company.

Methods of calculating purchase consideration

(A). Lump-sum method

When the transferee company agrees to pay a fixed sum to the transferor company, it is called a lump sum payment of purchases the business consideration.

For example, if X Ltd, purchases of Y Ltd and agrees to pay rs. 2500000 in all, it is an example of a lump-sum payment.

(B). Net worth(or net assets) method

According to this method, the purchase consideration is calculated by calculating the net worth of the assets taken over by the transferee company. 


Advantages of amalgamation

  • Amount of capital can be increased by combining business.
  • Establishment and management costs can be reduced.
  • Benefits of large scale production can be secured.
  • Research and development facilities are increased.
  • Monopoly in the market can be achieved
  • Avoiding competitions.
  • Increasing efficiency.
  • Expansion.

Disadvantage of amalgamation

  • Business combination brings a monopoly in the market, which may be harmful for society.
  • The identity of the old company finishes.
  • Goodwill of the company decrease.
  • Management of the company becomes difficult.

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