Consultants Corner Volume 5 | Number 69 | May 2012 | Page 1– 12
NCR Consultants Limited www.ncrcl.com
Associates with
AS 14:Accounting For Amalgamations
Page. 04
Lakshminarayanan M N
Handling QDQU Page. 03
Homage
Suresh R (24th November, 1984 to 5th May, 2012)
All of us at NCRCL deeply mourn the demise of our colleague Suresh. Suresh
popularly called ‘Suri’ joined NCRCL in April, 2003 in our BBMP project office
and was on duty when he passed away due to a heart attack. Apart from his
dedication to work, we remember Suri for his good sense of humour and
friendly nature. Images of his role in ‘Sri Krishna Sandhana’, a play staged by
NCRCL staff will never leave us and keep reminding us of his personality.
We pray for his soul to rest in peace.
3 4 5 6 7 8 1 2 12 11 9 10 Consultants’ Corner
The basic issue in corporate India is the lack of job fit. What educational
qualifications prepare the students for and what the industry needs seem to be
totally different. In recent times, this difference has been increasing as students
do not even possess soft skills and learning attitude at work. This has to
change.
I understand that the software bigwigs now recruit students from three year
programmes like B.Sc, B.Com and train them in-house before placing them on
the job. Engineering graduates are no more considered very suitable for the
software companies. The himalayan blunder in engineering courses has been expanding the quantity without any
concern for quality. Actually, if India had created even 25% of these institutions in the caliber of IITs then we would have
ruled the world. Slowly India is losing out in the IT sector. Apart from these qualitative issues, the cost of Indian
employees has also become very high that we are no more price beneficial to the clients. So we have a set of people
who are costly and cannot deliver!
This quality down-quantity up (QDQU) syndrome has caught up with the MBA course
also. We have thousands of institutions offering MBA programmes without any quality
whatsoever. Students without screening are admitted for the sake of fees and very low
quality programme is offered to them often with negative value additions making the
students totally unemployable!
No one seems to be bothered about this issue and the impact it has on the economy and
the country as a whole. India was known for its Mathematics and English skills. These are
now going down slowly. It is sad to note that the
attitude of the parents and the students are alike.
They do not want to learn and work for success. They feel that just the completion
of a course entails them with best things in life. This attitude of Indians, when
compared with the situation in countries like China, Brazil and even some of the
CIS countries is very depressing.
China is introducing interesting programmes that are oriented towards the
industry and research, apart from drastically improving the English skills of their
students. Innovative teaching methods and state of the art technology is used in
education. The industry is also aware of what is required and accordingly
provides feedback to the educational institutions. In India, the moment a person
gets the degree he wants he stops studying (meaning upgrading himself). In the
case of practicing professions like advocacy and accounting, the practitioners,
utmost try to understand the amendments in statutes relevant to them; they have
no idea of the technology that influences their practice, the latest concepts that
are being researched, and also the changing global market/behavioural
scenarios.
Thus we see not only in education, but also in work the updating and industry
orientation seem to be totally lacking. This QDQU need to be tackled immediately
and is no more an issue for the educational institutions alone. The stakeholders
from the demand side of the issue need to get involved and this means all of us.
We need to play a major role in handling QDQU issues. But how? Let us discuss.
Please mail your ideas….
3 Message from Dr. RSM
4 AS 14:Accounting For Amalgamations
5 Environmental Management Accounting (EMA)
7 How much should we do?
7 Feedback
8 What’s up at NCRCL?
9 An Exclusive Talk
10 Parichay
11 Knowledge Snippet
11 Birthday Greetings
11 Just for Laughs
11 Round Table
Inside
Handling QDQU
Dr.R.S. Murali
3 4 5 6 7 8 1 2 12 11 9 10 Consultants’ Corner
We can chart our future clearly and
wisely only when we know the path
which has led to the present.
-Adlai E. Stevenson
Introduction: The accounting terminology of
‘Amalgamation’ is derived from the term ‘Amalgam’
which means to unite. In corporate environments also
two entities unite and form a single entity.
Important Terms
Transferor Company: Company which is
amalgamated into another company.
Transferee Company: Company into which
Transferor Company would amalgam.
Types and Method of Accounting
In general, there are two types of amalgamation and
method of accounting, they are:
Amalgamation in nature of merger
1. In the event of two entities coming together. If all
five conditions stated in AS 14 are fulfilled it is
treated as amalgamation in nature of merger. The
conditions are as follows:
2. All the assets and liabilities of the transferor
company become the assets and liabilities of the
transferee company.
3. Shareholders of the transferor company holding not
less than 90% of the face value of equity shares
become the shareholders of transferee company by
virtue of amalgamation.
4. Consideration made to equity shareholders of
transferor company is in the form of equity shares in
the transferee company, except in case of fractional
shares cash can be paid.
5. The business of the transferor company is intended
to be carried on by the transferee company even
after amalgamation.
6. Assets and liabilities of the transferor company are
incorporated in the books of the transferee company
at book value except to ensure uniform accounting
policies.
Pooling of Interest method
1. In preparing financial statements of the transferee
company, assets, liabilities and reserves of the
transferor company should be recorded as existing
carrying amounts and in the same form at the date
of amalgamation, balance of the profit and loss
account of the transferor company should be
aggregated with the corresponding balance of the
transferee company or transferred to general
reserve if any.
2. If at the time of amalgamation the accounting policies followed by the transferor company and transferee company are in conflict, it should be resolved, and brought in line with the policies of the transferee company.
3. T he d i f f e re nce between the amount recorded in share capital issued and the amount of share capital issued by the transferor company should be adjusted in reserves, however in some cases courts may stipulate the manner in which the reserves should be adjusted.
Amalgamation in nature of purchase
What is not a merger is a purchase.
Purchase method
In purchase method accounting for amalgamation is done by applying same principles used in accounting for normal purchase of assets. Some of the rules adopted are the following.
1. The Assets and liabilities (not reserves) of the transferor company are incorporated in the books of transferee company at the existing amounts. Alternatively, the purchase consideration should be allocated individual identified Assets and liabilities on the basis of their fair values at the date of amalgamation.
2. Non statutory reserves of the transferor company are not included in the financial statements of the transferee company.
3. If purchase consideration > net assets, the difference is debited to the good will account. If purchase consideration < net assets, the difference is credited to the capital reserve account.
AS 14:Accounting For
Amalgamations
Lakshminarayanan M N
Nature of Amalgamation Method of Accounting
Merger Pooling of Interest method
Purchase Purchase method
Cont on next page
3 4 5 6 7 8 1 2 12 11 9 10 Consultants’ Corner
4. The goodwill arising on amalgamation should be
amortized to income over the five useful life.
however if some what a longer period is justifiable
the period of amortization can be extended.
5. Where the requirements of the relevant statute so
demands, statutory reserves should be recorded in
the financial statement of the transferee company.
(credit statutory reserves, debit ‘Amalgamation
adjustment account’). When legal requirements no
longer warrants maintenance of such reserve a
reverse entry is passed. The Amalgamation
adjustment account should be disclosed in the bal-
ance sheet under the heading ‘Miscellaneous
Expenditure’.
Areas Having Linkage
Non cash consideration
If consideration paid to transferor company, include
securities or non cash items. Four aspects have to be
kept in mind.
Non cash component must be valued at fair value.
In case of securities, the value fixed by the
statutory authorities have to be taken as fair value.
If other Assets are handed over their market value
is taken as fair value.
If market value are not ascertainable then the net
book values are taken as fair value.
Adjustment of consideration – Future events
A purchase or merger transaction can take place on
terms and conditions which may include an element of
consideration payable on a subsequent date which may
depend on one or more events materializing, two
possibilities may arise.
Such a condition payment if probable and amount
can also be estimated then the amount should be
included in the consideration.
In all other cases, it must be recognized as soon
as the amount is determinable.
Treatment of reserves if specified in the scheme of
amalgamation
In some cases, the court may specify certain conditions
pertaining to ‘treatment of reserves’ of transferor
company, then such conditions should be followed. If
such conditions as laid down by the court is different
from those of AS 14, then the following additional
disclosures is to be made.
Description of accounting treatment given.
Reasons for following such treatment.
Deviations in accounting treatment given to
reserves sanctioned under the statue as
compared to AS 14 that would have been
followed, had no treatment been prescribed by the
court.
Disclosure Requirements
1. For all amalgamations
a. Names, nature of business of amalgamating
companies and Effective date of amalgamation.
b. Method of accounting
c. Particulars of scheme –statutorily sanctioned
d. Amalgamation after B/S date but before issue of
financial statements disclose as per AS 4 – but
not be incorporated in financial statements.
2. For Pooling of interest -1st
Financial Statement
a. Description and nature of shares issued.
b. Percentage of equity shares exchanged to give
effect to amalgamation.
c. Difference between consideration and NAV
treatment.
3. For Purchase method-1st
Financial Statement
a. Consideration paid and contingently payable.
b. Difference between consideration and NAV
treatment.
c. Amortization period of goodwill if any.
Stories can conquer fear, you know. They can make the heart bigger.
- Ben Okri
Need for EMA
Many organizations are now aware of the environmental
implications of their operations, products or services on
the society which are important for long term survival
and profitability of the organization. By reducing the
negative impacts of its operations, products or services,
the potential benefits that flow to the organizations are
as follows.
1. Ensures the organizations meet with legal and
regulatory requirements
2. Increases sales by meeting the customers’ needs
3. Helps to create & maintain a positive public image
Environmental Management
Accounting (EMA)
Babu Rajendra Prasad
contd on next page
3 4 5 6 7 8 1 2 12 11 9 10 Consultants’ Corner
4. Helps in managing environment risk
5. Reduces environmental costs through improved use
of fuel, water etc
Deficiency in Traditional Accounting Systems
In Traditional Accounting Systems, costs related to
environment like waste management, pollution control,
decommissioning etc are grouped under the general
overheads and so organizations do not have any
information on those costs to manage or reduce the
environmental impacts. In order to overcome these
deficiencies, Environmental Management Accounting
was introduced.
E n v i r o n m e n t a l
Management Accounting
The purpose of EMA is to
take in to account the
e n v i r o n m e n t a l c o s t s
associated with all aspects
of operations, products or
services. The aim of EMA is
to provide financial and non
financial information about
the environment costs in
s u c h a w a y t h e
management can make
better decisions about products and projects and so
better manage their overall environmental performance.
EMA breaks down environmental costs into five
categories:
1. Conventional Costs: Raw materials, utilities, labour
and capital costs are conventional costs always
considered in project appraisals and cost
accounting, however the environmental portion of
these costs, e.g. non-product raw material costs, are
not isolated and recognized as environmental.
2. Administrative costs: Costs are buried in the
overhead costs and hidden. Examples include
monitoring, reporting or training costs.
3. Contingency costs: Costs that may or may not be
incurred in the future, such as potential clean-up
costs from an accident, compensations or fines: the
inherent difficulty in predicting their likelihood,
magnitude or timing often results in their omission
from the costing process. However, these costs very
often represent a major business risk for the
company.
4. Image benefits and costs: These costs often called
as intangible or “good-will" benefits and costs arise
from the improved or impaired perception of
stakeholders (environmentalists, regulators, custom-
ers, etc.). Changes in these intangible benefits are
often not felt until they are impaired.
For example, a bad relationship with regulators may
result in prolonged licensing process or stricter
monitoring.
5. External costs represent a cost to external
stakeholders (communities, customers, etc.) rather
than to the company itself. The company should be
aware, however, that high levels of external costs
may eventually become internalized through stricter
environmental regulation, taxes or fees.
Types of Information
EMA can collect two types of information to provide as
information to management for making decisions.
1. Physical data – On the use of
materials & resources
2. Monetary information – On the
financial costs and revenues &
potential savings
EMA Techniques
EMA techniques like Environmental
ABC, Life Cycle Costing, Input –
Output Analysis etc gathers the
a c c o u n t i n g i n f o r m a t i o n o f
environment costs related to specific
activities, processes, products or services.
Benefits to Organization
EMA is concerned with accounting information needs of
an organization in relation to corporate activities that
affect the environment as well as environment – related
impacts on the company. EMA enables the company:
To identify & estimate the costs of environment
related activities
To identify & monitor the usage & cost of resources
such as water, fuel etc and to reduce costs
To ensure environment contributions form part of
capital investment decisions and new product
developments
To assess the likelihood & impact of environment
risks
To ensure routine performance monitoring includes
environment related indicators & benchmark
activities against environmental best practice.
Reference
1. UNDSD: “Environmental Management Accounting, Procedures
and Principles”, United Nations, New York, 2001
The more you give, the more you live,
and it's never too early to start.
-Blake Mycoskie
3 4 5 6 7 8 1 2 12 11 9 10 Consultants’ Corner
Look deep into nature, and then you will under-
stand everything better.
- Albert Einstein
Thought to ponder...
In office, at home, in life we face situations where we are
tempted to do beyond our brief… with good intentions of
course, but our good intentions sometimes boomerang
much to our dismay. Lesson learnt, we may be content
doing just what is expected of us… and then we are
pulled up … for not showing initiative, to go beyond our
call of duty. How can we differentiate or draw the fine
line between being ticked off or appreciated; being
pro-active and not reactive. Nevertheless, I have
personally believed and lived by what Desmond Hill said
in Law of Success - work more than what you are paid
for. This means, be pro-active and exceed your brief.
Here again, choice is yours.
Now read on…………
==========================================
There was once a washer man who had a donkey and a
dog. One night when the whole world was sleeping, a
thief broke into the house, the washer man was fast
asleep too but the donkey and the dog were awake.
The dog decided not to bark since the master did not
take good care of him and wanted to teach him a lesson.
The donkey got worried and said to the dog that if he
doesn't bark, the donkey will have to do something
himself. The dog did not change his mind and the
donkey started braying loudly.
Hearing the donkey bray, the thief ran away, the master
woke up and started beating the donkey for braying in
the middle of the night for no reason.
Moral of the story: "One must not engage in duties
other than his own"
==========================================
Now take a new look at the same story...
The washer man was a well educated man from a
premier management institute.
He had the ability of
looking at the bigger
picture and thinking out
of the box. He was
convinced that there
must be some reason
for the donkey to bray
in the night.. He walked
outside a little and did
some fact finding,
applied a bottom up approach, figured out from the
ground realities that there was a thief who broke in and
the donkey only wanted to alert him about it.
Looking at the donkey's extra initiative and going
beyond the call of the duty, he rewarded him with lot of
hay and other perks and became his favorite pet.
The dog's life didn't change much, except that now the
donkey was more motivated in doing the dog's duties as
well. In the annual appraisal, the dog managed
"ME" (Met Expectations) .
Soon the dog realized that the donkey is taking care of
his duties and he can enjoy his life sleeping and lazing
around. The donkey was rated as "star performer". The
donkey had to live up to his already high performance
standards.
Soon he was over burdened with work and always under
pressure and now is looking for a NEW JOB ... !!!!
(Source: Internet)
How much should we do?
-Rekha Murali
CC looks stylish! Kudos to CC team!! - Bhavana
The New look CC is amazing. Especially the exclusive talk page is superb. it is as good as the TV program walk the talk..Keep it up.. congrats.. - Ravikrishnan
It’s come out very well. - Kishore
The new look is quite impressive and colourful! Hope we get in more and more original articles and add quality to the readers. - Suresh C S
While our CC has 12 colourful and well designed pages, effectively there are articles for only 5 pages. Effort should be made to improve this ratio and have at least 7 to 8 pages of worthwhile articles for our readers. - Suresh C S
New look is super! - Balaji (Office Assistant)
The new look CC looks great. Congrats on a job well done!! - Ashok Rao
Good job!! CC looks awesome. Looks professional and innovative. - Sowmya
Feedback
There were a number of responses to the new Avatar of the Consultants Corner which are featured above. Thank you
for your enthusiastic and encouraging feedback! We appreciate your support to help us do better. - Editorial Team
What’s up at NCRCL?
3 4 5 6 7 8 1 2 12 11 9 10 Consultants’ Corner
The most important lessons in life can never be expressed in black and white, but must be experienced. Experience is the greatest teacher.
- Benny Lewis
Gopal Agarwal, CA, joins
NCRCL® Bangalore.
Welcome!!
We extend a very warm welcome to Gopal and Krithiga!
R Krithiga Priyadharsini,
CA, jo ins NCRCL®
Chennai.
Babu Rajendra Prasad conducted a two day study circle on
Balanced Score Card. The initiative was well received by the
NCRCL team with whole hearted participation. The first day’s
session covered the theoretical aspects of Balanced score card
with corporate examples. The second day was action packed for
the participants with a case study. The Case study was based
on a Greek Tobacco Manufacturing Company. The participants
were divided into four teams with team members selecting a
name for their team. Each team was then asked to prepare a
balanced score card on a relevant area for the company. A
member of the team was then asked to present it to the larger
group for discussion and validation. The presentations were
conducted during the major part of the day after team
discussions. Kudos to Babu for the well planned initiative and we
hope to see more such workshops at NCRCL!
C S Suresh attended a seminar on
Business Opportunities with ADB at
Hyderabad on 24th April 2012.
Our Chennai office celebrated “Ethnic Day”
on Saturday, April 21, 2012. The team
members came sportingly dressed in
traditional attire to office. The men wore
Dhotis with Kurta/Shirt and the women
presented a pretty picture in colourful sarees
and the customary “mallipoo” (jasmine
flowers). The enthusiasm and gaiety was
palpable through the day and the icing on
the cake was the birthday celebrations of
Lakshminarayanan. The day was filled with
both an element of fun and intense learning.
Ashok Rao &
Padmaja visited
Mangalore for TP
Project
“Are social networking sites generally
beneficial to our world” was the topic of a
heated debate at our Chennai office,
organised by Pradeep on 25th April,
judged by C S Suresh with Kishore as
the moderator. The result was however
neutral.
An Exclusive Talk with Gopal
Gopal Agarwal CA , B.Com. Working as Consultant Trainee Born on 17th February Email: [email protected] Mob No: +91 8892621806
CC. The meaning of your name.
Gopal: Gopal is the Child form of Lord Krishna.
CC. Nickname.
Gopal: Goops
CC. Your dream job.
Gopal: Be a successful Businessman
CC Your first impression of NCRCL.
Gopal: Knowledge and professionalism
CC. What personal/emotional characteristic of yours do you want to change?
Gopal: Anger
CC. Money or job satisfaction?
Gopal: First priority Job Satisfaction.
CC. Your Stress buster.
Gopal: Previously it was Internet Surfing, Now it’s REIKI
CC. Do you have a small circle of close friends, rather than a large number of friends?
Gopal: I have both types of friends
CC. What do you most like about a person?
Gopal: Knowledge and simplicity
CC. What do you most hate in a person?
Gopal: Dual policy (andre se kuch, bahar se kuch)
CC. Team work vs Individual work – your com-ments.
Gopal: Depends.
CC. Do you make efforts to get others to laugh and smile?
Gopal: Yeah. Whenever I get the chance, I make efforts to get others to smile.
CC. Your heart rules your head or your head rules your heart?
Gopal: When things are related to emotions, my heart rules my head and when things are related to responsibility, my head rules my heart.
CC. What kind of special talent do you have?
Gopal: I can easily understand new things
CC. What are your hobbies?
Gopal: Chess, Travelling
3 4 5 6 7 8 1 2 12 11 9 10 Consultants’ Corner
Wisdom is knowing what to do next,
skill is knowing how to do it, and virtue
is doing it.
- David Starr Jordan
Parichay Know our Associates!
Fichtner India
FICHTNER INDIA, an ISO:9001:2000 company certified by TUV India, is one of the leading
Engineering Consultancy firms in India providing comprehensive engineering solutions for a wide
range of services in the:
Utility & Industrial Power Projects – based on subcritical and supercritical technology
Desalination Plants
Water & Infrastructure Projects
FICHTNER INDIA also provides complete range of engineering consultancy services, with the
support of FICHTNER GERMANY in Solar Power Projects in India based on modern technology.
FICHTNER INDIA, Incorporated in the year 1987 as a joint venture, is today a wholly owned
subsidiary company of FICHTNER GmbH & Co. KG, Stuttgart, Germany, and has grown into a
leading multidisciplinary engineering consultancy firm. It has its head office in Chennai and has
branch offices at Mumbai and Bengaluru.
NCRCL® and FICHTNER INDIA have entered into a long term contractual agreement to work
together on a prestigious project with Karnataka Urban Infrastructure Development and Finance
Corporation (KUIDFC) over the last two years. NCRCL has provided the services of Information
Management Specialist and Financial Management Expert to work with the Project Management
Unit of the World Bank assisted Karnataka Municipal Reforms Project (KMRP).
Answer To last month’s Knowledge Snippet question:
Which is the river which carries maximum quantity of water into the sea?
Answer: Amazon River. It is in Brazil
Ha Ha Ha !!!
Knowledge Snippet
The right answer was given by
R Bhavana
!!! Congratulations !!!
Happy Birthday!
Round Table
Which is the country known as the Sugar Bowl of the
world?
Send in your answers to the editor at [email protected]
3 4 5 6 7 8 1 2 12 11 9 10 Consultants Corner
What you are is what you have been. What you'll be is what you do now.
- Buddha
Suggestions galore from our colleagues on the changes they would like to see at NCRCL! We
can get together for a discussion on how to take these suggestions forward! - Editorial Team
For feedback
If you have any comment/suggestion for the
editors, please write to us at [email protected]! Your
views and comments on articles featured here
are also welcome!
Balaji.G - 25th May
I would like to have a more spacious office for NCRCL Bangalore with a separate room for discussion
- Ashok
I would like to see a bright and fit team at NCRCL. What better way than to start a group yoga session twice or thrice a
week! This would lead to a more cohesive and energised team. Also uplift each one of us spiritually leading to benefit of
the Organisation. This can be done either before or after office hours. - Rekha
Let us have a knowledge sharing session during the tea break (every alternate day at least). The session should not last
for more than 5-7 minutes followed by a few mins of Q&A/discussion. New concepts and ideas relating to our area of
work can be discussed at the library table. Topics may be from areas such as Finance, Process, IT, HR, General
Management etc. These can go in as a half-page article for that month's CC - Kishore
Over the last year or so we have been dedicating one full page for "Our Business Associates" and filling it up with
colourful logos. How many of the NCRCL employees know these associates, what they do and who are the people
behind these entities? It would be nice if we can organise key members of the associates to come and address us (with
video conference with Blore) or in some cases, have an internal briefing about them.—C S Suresh
Our Business Associates
NCR & Co Chartered Accountants www.deltacadd.com
www.f1secure.com www.nathaninc.com
www.hsbconsulting.biz www.obsitech.com
www.altacit.com
www.fichtner.in/india.htm
www.4spl.biz
www.ineval.org
www.fugoconsulting.com
Karnataka Institute of Public Auditors www.mcmillanwoods.com
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