External Reconstruction and Amalgamation

The upcoming discussion will update you about the difference between External Reconstruction and Amalgamation.

From the point of view of an accountant, external reconstruction is similar to amalgamation in the nature of purchase; the books of the transferor company are closed and in the books of the transferee company, the purchase of the business is recorded.

But otherwise external reconstruction and amalgamation differ as follows:

(i) In external reconstruction, only one existing company is involved whereas in amalgamation, there are at least two existing companies which amalgamate.

(ii) In external reconstruction, a new company is certainly formed whereas in amalgamation a new company may be formed or in the alternative one of the exiting companies may take over the other amalgamating company or companies and no new company may be formed.

(iii) The objective of external reconstruction is to reorganize the financial structure of the company. On the other hand, the objective of amalgamation is to cut competition and reap the economies of large scale.

Illustration 1:

On 31st March, 2012, the balance sheet of H Ltd. was as follows:—

Illustration 2:

The abridged balance sheet of P Ltd. as at 31st March, 2012, is as under:

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