The preparation of an amalgamated balance sheet involves the consolidation of the financial statements of the merging companies. This process is carried out to present the financial position of the amalgamated entity as a single economic entity. The Accounting Standard (AS) 14 or Ind AS 103 lays down the principles for accounting for amalgamations.
The amalgamated balance sheet is prepared as per the following steps:
Step 1: Prepare the opening balance sheet of the amalgamated company:
The opening balance sheet of the amalgamated company is prepared by combining the assets and liabilities of the merging companies. This is done by eliminating any inter-company transactions and balances. Any excess of consideration paid over the fair value of the net assets acquired is recognized as goodwill.
Step 2: Combine the assets and liabilities of the merging companies:
The assets and liabilities of the merging companies are combined in the amalgamated balance sheet. Any inter-company transactions and balances are eliminated. The assets and liabilities are recognized at their fair values on the date of the amalgamation.
Step 3: Eliminate the inter-company holdings:
Any inter-company holdings in the assets or liabilities of the merging companies are eliminated. This is done to avoid double-counting of assets or liabilities.
Step 4: Adjust for goodwill:
Goodwill is the excess of the consideration paid over the fair value of the net assets acquired. Goodwill is recognized in the amalgamated balance sheet as an intangible asset. It is shown separately from other assets and liabilities.
Step 5: Present the amalgamated balance sheet:
Finally, the amalgamated balance sheet is presented in the format prescribed by the relevant accounting standard.
Assume two companies A Ltd and B Ltd amalgamate to form a new company C Ltd. The balance sheets of A Ltd and B Ltd as on 31st March 2023 are as follows:
A Ltd Balance Sheet
|Particulars||Amount (Rs.)||B Ltd Balance Sheet||Amount (Rs.)|
|Fixed Assets||1,20,000||Fixed Assets||80,000|
|Current Assets||60,000||Current Assets||20,000|
|Total Assets||2,00,000||Total Assets||1,30,000|
|Share Capital||1,00,000||Share Capital||60,000|
|Current Liabilities||80,000||Current Liabilities||40,000|
|Total Liabilities||2,00,000||Total Liabilities||1,30,000|
C Ltd purchases the business of A Ltd and B Ltd for Rs. 3,50,000. The value of net assets taken over by C Ltd is Rs. 2,30,000. The fair value of the assets acquired and liabilities taken over are as follows:
|Particulars||Fair Value (Rs.)|
|Net Assets taken over||2,40,000|
The amalgamated balance sheet of C Ltd, after adjusting for goodwill, is prepared as follows:
C Ltd Amalgamated Balance Sheet
|Less: Current Liabilities||40,000|
|Net Current Assets||40,000|
|Equity and Liabilities|
|Reserves and Surplus||1,20,000|
|Profit and Loss Account||20,000|
|Total Equity and Liabilities||3,50,000|
In the above example, the value of net assets taken over by C Ltd is Rs. 2,30,000, and the consideration paid is Rs. 3,50,000. Therefore, goodwill arising on amalgamation is Rs. 1,10,000. This goodwill is shown as a separate item in the amalgamated balance sheet.
The amalgamated balance sheet includes the assets and liabilities acquired by C Ltd, along with the goodwill arising on amalgamation. The equity and liabilities section includes share capital, reserves and surplus, and current liabilities. The total equity and liabilities should equal the total assets.