According to AS-14, Amalgamation is of two types:
1. Amalgamation in the nature of merger
2. Amalgamation in the nature of purchase
1. Amalgamation in the nature of Merger
According to AS-14 on Accounting for Amalgamation, the following conditions must be satisfied for an amalgamation in the nature of merger:
A. After amalgamation, all the assets and liabilities of the transferor company becomes the assets and liabilities of the transferee company.
B. Shareholders holding not less than 90% of the face value of the equity shares of the transferor company become the equity shareholders of the transferee company by virtue of amalgamation.
C. The business of the transferor company is intended to be carried on after the amalgamation by the transferee company.
D. Purchase consideration should be discharged only by issue of equity shares in the transferee company except that cash may be paid in respect of any fractional shares.
E. No adjustments are required to be made in the book values of the assets and liabilities of the transferor company, when they are incorporated in the financial statements of the transferee company. If any one of the condition is not satisfied in a process of amalgamation, it will not be considered as amalgamation in the nature of merger.
2. Amalgamation in the nature of Purchase
An amalgamation will be treated as “Amalgamation in the nature of purchase” if any of the above mentioned conditions is not satisfied.