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Introduction
When two or more companies carrying on similar business go
into liquidation and a new company is formed to take over their
business, it is called amalgamation. In other words, amalgamation
refers to the formation of a new company by taking over the business
of two or more existing companies doing similar type of business. In
amalgamation, two or more companies are liquidated and a new
company is formed to take over the business of liquidating companies.
The companies which go into liquidation are called vendor or
amalgamating companies where as the new company which is formed
to take over the business of liquidating companies is called purchasing
or amalgamated or transferee company. The main aim of
amalgamation is to minimize the possibility of cut-throat competition
and to secure the advantages of large scale production.
Before we proceed to know, What is Amalgamation? First let's
understand the meaning of two terms viz., 'amalgamating companies'
and 'amalgamated company'. The meaning of these terms is as follows:
1. Amalgamating companies are those two or more companies which
willingly unite (combine) to carry on their business activities
jointly.
2. Amalgamated company is a newly formed union (alliance) of two
or more amalgamating companies. It has a separate legal existence
with a new unique name.
Now let's discuss the meaning of amalgamation with some
examples.
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To amalgamate means to unite or combine or blend. It is an act
or process in which two or more things fuse together to form a new
potent thing.
Amalgamation is an emerging trend of today's business world. It
results in the formation of a new, strong, stable and large company. It
also results in the growth and expansion of this newly formed
company.
During amalgamation, two or more companies willingly come
together to cooperate with each other and diversify (expand) their
business activities.
After amalgamation, two or more companies dissolve
(disintegrate) and lose their individual legal status (existence), hence
they no longer exist anymore. However, they again re-establish
themselves, but now jointly, by forming a new company having a
unique name.
Thus, amalgamation results in the formation of a new (separate)
company which has a unique name, logo, identity and existence.
The management of amalgamated company is led (directed) by
members of two or more companies getting amalgamated.
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DEFINITION of 'Amalgamation'
The combination of one or more companies into a new entity.
An amalgamation is distinct from a merger because neither of the
combining companies survives as a legal entity. Rather, a completely
new entity is formed to house the combined assets and liabilities of
both companies.
Amalgamation is defined as a simple arrangement or
reconstruction of business. It is a process that involves combining of
two or more companies as either absorption or as blend. Two or more
companies can either be absorbed by an entirely new firm or a
subsidiary powered by one of the basic firm. In such cases all the
shareholders of the absorbed company automatically become the
shareholders of the ruling company as the amalgamating company
loses its existence. All the assets and liabilities are also transferred to
the new entity.
Amalgamation has given different forms to different actions in
due course of the merger taking place. It can either be classified in the
nature of merger or in the nature of purchase. If the process takes place
in the nature of merger then the all assets, liabilities, and shareholders
holding not less than 90% of equity shares are automatically
transferred to the new company or the holding company by virtue of
the amalgamation.
When amalgamation takes place in nature of purchase then the
assets and liabilities of the company are taken over by the ruling
company. All the properties and characteristics of amalgamating
company should vest with the other company. Even the shareholders
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holding shares not less than 75% should transfer their shares to the
transferee company. In such a case any company does not purchase the
business resulting in a takeover, the transferor company does not
completely lose its existence.
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Features Of Amalgamation
* Two or more existing companies are liquidated.
* A new company is formed to take over the business of liquidating
companies.
* The nature of business of existing companies is similar.
* Liquidating companies are called vendor companies and the new
company is called purchasing company.
* Generally, purchase consideration is discharged by the issue of
equity shares of purchasing company.
"Amalgamation" is Dissolution of one or more Companies and
Transfer of Business to Another Entity. Companies which come
together are Known as "Amalgamating companies" or" Transferor
Companies" , Companies which the Transferor companies get
amalgamated into is "Amalgamated Company"
Amalagamation includes Absorbtion.Absorbtion is Aquisition of
business of Existing company.
AS 14 doesn't Cover parent subsidiary relationship where one
company Acquires control over other without impinging the Legal
independent Status of other company.It is Dealt with under AS21.
AS 14 brings Concept of Amalgamation under two broad categories.
First Amalgamation in nature of “Merger” , Under this category
there is Genuine pooling of
o Not merely Assets and Liabilities of the Amalgamating companies
o But also the interest of Shareholders and business of the
companies.
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Second is Amalgamation in Nature of “Purchase” .
o A mode by which one company acquires another company and
o As a consequence the shareholders of company which acquired
normally do not continue to possess interest in equity of the
combined company in an identical proportion to that held by them
in liquidated company. Also the business of company which
acquired is not necessarily intended to be continued.
AS 14 gives 5 Specific conditions on fulfillment of which
Amalgamation is treated as merger.
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Five Conditions
1. All the ASSETS and liabilities of transferor company become
assets and liabilities of transferee company.
2. Shareholders of SC holding not less than 90 % of “Face value” of
equity shares become shareholders of PC by virtue of
“Amalgamation” . For purpose of computing 90% , Following
shares are not be considered
a. Shares held by PC in SC
b. Shares held by One or more subsidiaries of PC in SC
c. Nominees of PC in SC
3. The Consideration Paid to Equity shareholders of SC is in form of
Equity shares of PC , Except cash may be paid for Partial shares.
4. Business of is intended to be continued on after amalgamation by
PC and
5. Assets and liabilities of SC are incorporated in financial statements
of the PC at book values except to ensure uniform accounting
policies.
AS 14 provides two methods of accounting for AS 14 ,Which are
Pooling of Interest method for Amalgamation in nature of Merger
Purchase method of Amalgamation in nature of purchase.
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Salient features of Pooling of interest method.
1. In preparing the financial statements of PC the Assets and
Liabilities of SC should be recorded at their existing values and
in the same form as on date of amalgamation. The balance of
P&L account should be aggregated with corresponding balance
of PC .
2. If at time of amalgamation , transferee and transferor company
were to have conflict of accounting policies , Such conflict is
resolved and brought in line with policy adopted by PC .
3. The Difference between amount recorded as Share capital issued
and amount of capital of SC should be adjusted in reserves .
Accordingly No goodwill or Capital reserve will Arise.
Salient features of Purchase method.
1. The Assets and Liabilities of SC are incorporated in financial
statements of PC at existing values . Alternatively the purchase
consideration should be allocated to individual indentifiable assets
and liabilities on basis of fair values.
2. Identity of Non statutory reserves of SC is not preserved . Hence
such reserves should not be included in financial statements of PC
3. If purchase consideration is more than net assets of PC , then the
difference is credited to goodwill, Alternatively if Purchase
consideration is less than Net assets of PC the difference is credited
to Capital reserve.
4. Goodwill arising out of Amalgamation should be amortized over its
useful life not exceeding period of Five years.
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5. Where the requirements of relevant statute demands “Statutory
reserve” of SC to be recorded in financial statements of PC . While
crediting the statutory reserve the debit needs to be given to
“Amalgamation adjustment A/c” . The Account should be disclosed
under “Misc expenditure .
Impact on AS 4 – Amalgamation after balance sheet date.
Where Amalgamation happens after Balance sheet date , the
Impact cannot be shown as part of Financial statements and hence
needs to be disclosed in directors report.
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Accounting for amalgamations
A. Computation of Purchase consideration
Net assets Method
Assets taken over at fair values - XXXX
Less : Liabilities taken over at agreed amounts -XXXX
_____
Net Assets / Purchase Consideration XXXX
=====
Payments
Aggregate of shares paid to various shareholders.
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B. Transferor Company accounting.
Tranfer to realization account :
Realization A/C Dr
To Assets
Liabilities A/C Dr
To Realization
Purchase consideration .
Due entry :
Transferee Company Dr
To Realisation
Payment entry
Shares in transferee company Dr
Bank Dr
To transferee company
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Sale of Assets Not taken over
Bank Dr
To Assets (Book value)
To Realisation ( Profit)
Settlement of Liabilities Not taken over
Liabilities Dr
To Bank
To Realisation
Realisation Expenses
a. Incurred by transferor company
Realisation A/C Dr
To Bank
b. Incurred by transferor company and reimbursed by transferee
company
Transferee Company A/C Dr
To Bank
Bank Dr
To Transferee company
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c. Incurred by Transferee company
No Entries
Amount Due to equity share holders.
Equity share capital Dr
Reserves Dr
To Shareholders
Transfer of Balance of realization
Realsisation A/C Dr
To Shareholders
Settlement to Shareholders by transfer of Consideration received.
Share holders A/C Dr
T o Shares in Purchasing company
To Bank
Transferee Company Accounting
1. Accounting should be done as per AS 14
2. Accounting should be done as per Mode of Amalgamation.
Purchase method
Due Entry for Business Consideration
Business Purchase Dr
To Liquidator of transferor company
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Incorporation of Assets and liabilities taken over
Assets
Assets A/C Dr
Goodwill Dr
To Liabilities
To Business Purchase
To Capital reserve
Discharge of Purchase consideration
Liquidator of transferor company A/C Dr
To Share capital
To Securities premium
To Bank
Others
Cancellation of Intercompany Owings.
Creditors Dr
To Debtors
Elimination of Unrealized Profits on goods sold by one company to
another and remaining unsold as of date of amalgamation
Goodwill /Capital reserve Dr
To Stock Reserve
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Realisation Expenses
Goodwill/Capital reserve Dr
To bank
Contra entry for statutory reserve of which liability is not yet fulfilled
Amalgamation adjustment Dr
To Statutory reserve
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Example of Amalgamation
Consider the example of amalgamation shown in the following
diagram.
In the above example, Company 'A' and Company 'B' are
operating (existing) in the market. Company 'A' is one amalgamating
company while Company 'B' is another amalgamating company.
Company 'A' and Company 'B' are getting amalgamated to form a new
(separate) Company named 'AB'.
In this example of amalgamation, Company 'A' and Company 'B'
will surrender all their equity shares (ownership shares) to the newly
formed Amalgamated Company 'AB'. The assets and liabilities of
Amalgamating Companies 'A' and 'B' will be transferred to Company
'AB'. The shareholders of the Company 'A' and Company 'B' will be
given the shares of Company 'AB'. The amalgamating companies 'A'
and 'B' will lose their individual existence (identity) and continue to
operate jointly under the name of Company 'AB'.
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Two good examples of amalgamations are as follows:
1. Maruti Motors operating in India and Suzuki based in Japan
amalgamated to form a new company called Maruti Suzuki (India)
Limited.
2. Tata Sons operating in India and AIA Group based in Hong Kong
amalgamated to form a new company called TATA AIG Life
Insurance.
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Maruti suzuki
Maruti Suzuki India Limited is an automobile manufacturer in
India. It is a subsidiary of Japanese automobile and motorcycle
manufacturer Suzuki. As of November 2012, it had a market share of
37% of the Indian passenger car markets. Maruti Suzuki manufactures
and sells a complete range of cars from the entry level Maruti 800,
Alto, to the hatchback Ritz, Celerio, , A-Star, Swift, Wagon R, Zen and
sedans DZire, Ciaz, Kizashi and SX4, in the 'C' segment Eeco, Omni,
Multi Purpose vehicle Suzuki Ertiga and Sports Utility vehicle Grand
Vitara.
The company's headquarters are at No 1, Nelson Mandela Road,
New Delhi. In February 2012, the company sold its ten millionth
vehicle in India.
Joint venture related issues
Relationship between the Government of India, under the United
Front (India) coalition and Suzuki Motor Corporation over the joint
venture was a point of heated debate in the Indian media until Suzuki
Motor Corporation gained the controlling stake. This highly profitable
joint venture that had a near monopolistic trade in the Indian
automobile market and the nature of the partnership built up till then
was the underlying reason for most issues. The success of the joint
venture led Suzuki to increase its equity from 26% to 40% in 1987, and
further to 50% in 1992. In 1982 both the venture partners had entered
into an agreement to nominate their candidate for the post of Managing
Director and every Managing Director will have a tenure of five years
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R.C. Bhargava was the initial managing director of the company since
the inception of the joint venture. Till today he is regarded as
instrumental for the success of Maruti Suzuki. Joining in 1982 he held
several key positions in the company before heading the company as
Managing Director. Currently he is on the Board of Directors. After
completing his five-year tenure, Mr. Bhargava later assumed the office
of Part-Time Chairman. The Government nominated Mr. S.S.L.N.
Bhaskarudu as the Managing Director on 27 August 1997. Mr.
Bhaskarudu had joined Maruti Suzuki in 1983 after spending 21 years
in the Public sector undertaking Bharat Heavy Electricals Limited as
General Manager. In 1987 he was promoted as Chief General
Manager. In 1988 he was named Director, Productions and Projects.
The next year (1989) he was named Director of Materials and in 1993
he became Joint Managing Director.
Suzuki did not attend the Annual General Meeting of the Board
with the reason of it being called on a short notice. Later Suzuki Motor
Corporation went on record to state that Bhaskarudu was
"incompetent" and wanted someone else. However, the Ministry of
Industries, Government of India refuted the charges. Media stated from
the Maruti Suzuki sources that Bhaskarudu was interested to indigenise
most of components for the models including gear boxes especially for
Maruti 800. Suzuki also felt that Bhaskarudu was a proxy for the
Government and would not let it increase its stake in the venture.[21] If
Maruti Suzuki would have been able to indigenise gear boxes then
Maruti Suzuki would have been able to manufacture all the models
without the technical assistance from Suzuki. Till today the issue of
localization of gear boxes is highlighted in the press.
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Manufacturing facilities
Maruti Suzuki has two manufacturing facilities in India. Both
manufacturing facilities have a combined production capacity of
14,50,000 vehicles annually. During a recent meeting of the Gujarat
chief minister with Suzuki Motor Corp chairman & CEO Osamu
Suzuki,the Chairman had said that the work on car manufacturing plant
at Mandal near Ahmedabad would be started soon. Maruti Suzuki to
set up second plant in Gujarat; acquires 600 acres.
The Gurgaon manufacturing facility has three fully integrated
manufacturing plants and is spread over 300 acres (1.2 km2). All three
plants have an installed capacity of 350,000 vehicles annually but
productivity improvements have enabled it to manufacture 900,000
vehicles annually. The Gurgaon facilities also manufacture 240,000 K-
Series engines annually. The entire facility is equipped with more than
150 robots, out of which 71 have been developed in-house. The
Gurgaon Facilities manufactures the 800, Alto, WagonR, Estilo, Omni,
Gypsy, Ertiga, Ritz and Eeco.
The Manesar manufacturing plant was inaugurated in February
2007 and is spread over 600 acres (2.4 km2). Initially it had a
production capacity of 100,000 vehicles annually but this was
increased to 300,000 vehicles annually in October 2008. The
production capacity was further increased by 250,000 vehicles taking
total production capacity to 550,000 vehicles annually. The Manesar
Plant produces the A-star, Swift, Swift DZire, SX4, Ritz and Celerio.
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On 25 June 2012, Haryana State Industries and Infrastructure
Development Corporation demanded Maruti Suzuki to pay an
additional Rs 235 crore for enhanced land acquisition for its Haryana
plant expansion. The agency reminded Maruti that failure to pay the
amount would lead to further proceedings and vacating the enhanced
land acquisition.
Industrial relations
Since its founding in 1983, Maruti Udyog Limited experienced
problems with its labour force. The Indian labour it hired readily
accepted Japanese work culture and the modern manufacturing
process. In 1997, there was a change in ownership, and Maruti became
predominantly government controlled. Shortly thereafter, conflict
between the United Front Government and Suzuki started. Labour
unrest started under management of Indian central government. In
2000, a major industrial relations issue began and employees of Maruti
went on an indefinite strike, demanding among other things, major
revisions to their wages, incentives and pensions.
Employees used slowdown in October 2000, to press a revision
to their incentive-linked pay. In parallel, after elections and a new
central government led by NDA alliance, India pursued a
disinvestments policy. Along with many other government owned
companies, the new administration proposed to sell part of its stake in
Maruti Suzuki in a public offering. The worker's union opposed this
sell-off plan on the grounds that the company will lose a major
business advantage of being subsidised by the Government, and the
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union has better protection while the company remains in control of the
government.
The standoff between the union and the management continued
through 2001. The management refused union demands citing
increased competition and lower margins. The central government
prevailed and privatized Maruti in 2002. Suzuki became the majority
owner of Maruti Udyog Limited.
Manesar violence
On 18 July 2012, Maruti's Manesar plant was hit by violence as
workers at one of its auto factories attacked supervisors and started a
fire that killed a company official and injured 100 managers, including
two Japanese expatriates. The violent mob also injured nine policemen.
The company's General Manager of Human Resources had both arms
and legs broken by his attackers, unable to leave the building that was
set ablaze, and was charred to death. The incident is the worst-ever for
Suzuki since the company began operations in India in 1983.
Since April 2012, the Manesar union had demanded a three-fold
increase in basic salary, a monthly conveyance allowance of 10,000, a
laundry allowance of 3,000, a gift with every new car launch, and a
house for every worker who wants one or cheaper home loans for those
who want to build their own houses.Initial reports claimed wage
dispute and a union spokesman alleged the incident may be caste-
related.[35][36] According to the Maruti Suzuki Workers Union a
supervisor had abused and made discriminatory comments to a low-
caste worker.[37] These claims were denied by the company and the
police.[33] The supervisor alleged was found to belong to a tribal
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heritage and outside of Hindu caste system; further, the numerous
workers involved in violence were not affiliated with caste either.
Maruti said the unrest began, not over wage discussions, but after the
workers' union demanded the reinstatement of a worker who had been
suspended for beating a supervisor.[34] The workers claim harsh
working conditions and extensive hiring of low-paid contract workers
which are paid about $126 a month, about half the minimum wage of
permanent employees. Maruti employees currently earn allowances in
addition to their base wage. Company executives denied harsh
conditions and claim they hired entry-level workers on contracts and
made them permanent as they gained experience. It was also claimed
that bouncers were deployed by the company.
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Amalgamation of Firms
Amalgamation of Firms When two or more firms merge into one
firm and makes a new firm, then this is called amalgamation of firms.
For accounting point of view this definition is so important because if
one firm purchases other firm, then this is not called amalgamation but
if both firms decide to join or integrate then this is called
amalgamation. For Example, Suppose A and B firm decide to close
their business and start the business with the name of AB firm after
joining with each other then this is called amalgamation of A and B
firm. Steps for closing the accounts of old firm at the time of
amalgamation of firms When two firm amalgamate with each other, at
this time we treat following accounting in the books of old firms so
that all doubt solves.
1st: Revaluation of Assets and Liabilities All entries same as at
the time of admission and retirement
2nd: Transferring reserve to old partners capital account into
their old ratio
3rd: Treatment of Goodwill We evaluate the goodwill according
to the condition of agreement and then goodwill will open with agreed
value int the books
4th: Treatment of Assets and liabilities not taken by new firm If
assets and liabilities are not taken by new firm, then these item will
transfer to the capital accounts of partners of old firm and we close
these accounts Treatment of assets and liabilities taken by new firm In
the books of old partners a For closing the account of assets New Firms
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Account Debit Assets Account Credit at revalued value b For closing
the accounts of liabilities Liabilities Account Debit New Firm Account
Credit 6th Closing the accounts of partners capital Partner's capital
account Debit New Firms Account Credit In the books of new firm
Assets Account Debit Liabilities Account Credit Partner's capital
Account Credit
Accounting of jewellery business There is boom in jewellery
business. Due to increasing the value of gold jewellery business is
giving high rate of return to business man. Because of my background
is related to this business so, I am writing and telling you the technique
of how to make and maintain the accounts of jewellery business. It is
very simple to record of jewellery business but it is very harmful to
make any mistake in these type of accounts. Because 10 gram's
quantity's value is approximately Rs. 10000 so be careful while doing
the accounts of jewellery business. When we purchase gold, it will our
raw material. So it will deal as stock, it should valued on cost. Then
you should regular passing the voucher entry of purchasing of gold. In
cash book if you purchase on cash, if you purchase on credit, then your
duty is also to maintain the accounts of your creditors also. Because
this is our current liabilities, we should know how much amount, we
will have to pay to our creditors. In manual accounting, we just make
journal or day book, ledger after this we should find out our profit or
loss from manufacturing, trading and profit and loss account after this
we also must make balance sheet.
Steps for maintaining branch accounting 1 In that type of
branches, it is necessary to make bank account in the name of head
office so that amount got from cash sale can be deposited in head
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office bank account. 2 All miscellaneous expenses is given by head
office accountant to branch accountant on impress or advance system
of cash book. 3 All salaries, rent, advertising and other expenses must
be paid by head office. 4 Head office can send goods to branch on cost
price or invoice price. 5 It is necessary for branch to make the list of
debtors if branch has all to sell the goods on credit. It is duty of branch
accountant to send branch debtors list to head office weekly or
monthly. 6 These branches can make memorandums in different
registers. On these memorandums and registers head office can make
branch account For making branch account in head office, we open
each branch account in head office with given branch name.
Accounting treatment of web-publishing profession If you have
your own website, web blog, or any blog and you are earning more
than tax limit in India. I am providing you the full tutorial of
accounting treatment of web publishing profession. For this I am
making income and expenditure account In vertical form which is
accepted by Income tax department.
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CONCLUSION
Amalgamtion can also be defined as “Amalgamation takes place
when two or more comapanies combine into one company, the
shareholders in the amalgamting companies becoming substantially the
shareholders in the amalgamted company.”
In more common way, Amalgamtion would mean the two
business entities joining together to make totally new business entity or
to allow one business entity to survive absorbing the other one.
Amalgamation or merger is also a method of reconstruction. In
amalgamation, two or more companies are fused into one by merger or
by one taking over the other. When two companies are merged and are
so joined as to form third company or one is absorbed into other or
blended with another, the amalgamating company loses its identity.
There may be amalgamation either by transfer of two or more
undertakings to a new company or by the transfer of one or more
undertakings to an existing company. An amalgamation may be
defined as an arrangement whereby the assets of the two companies
which has as its share holders all, or substantially all the share holders
of the two companies
A consolidation is a combination of two or more companies into
a new company. In this form of merge, all the existing companies,
which combine, go into a new company. In this form of merger, all the
existing companies, which combine, go into liquidation and form a
new company with a different entity. The entity of the existing
company is lost and their assets and liabilities are taking over by the
new corporation or company.
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BIBLIOGRAPHY
http://www.svtuition.org/2008/12/steps-for-closing-accounts-of-
old-firm.html
http://www.examrace.com/Study-
Material/Commerce/Accounting-and-Audit/Amalgamation-of-
Firms.html
http://www.goodreturns.in/news/2013/02/08/maruti-suzuki-
scheme-amalgamation-159664.html
en.wikipedia.org/wiki/Amalgamation
www.investopedia.com/terms/a/amalgamation.asp