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BY ,JIJO SAJI

SRO 0455534

EXTERNAL AND INTERNAL RE-CONSTRUCTONS

30-jun-15

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WHY ? RE-CONSTRUCTION

*CHANGED NATURE OF BUSINESS*DOWNSIZING*NEW-WORK METHODS*NEW-MANAGEMENT METHODS*QULITY MANAGEMENT*TECHNOLOGY*FINANCE RELATED ISSUES*STATOTARY LEGAL COMPLIMENTS

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WHAT? RE-CONSTRUCTION

when a company is suffering loss for several past years and suffering from financial difficulties, it may go for reconstruction. In other words, when a company's balance sheet shows huge accumulated losses, heavy fictitious and intangible assets or is in financial difficulties or is to over capitalized, and then the process of reconstruction is restored.Reconstruction may be internal and external

30-jun-15

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HOW?RE-CONSTRUCTION

RE-CONSTRUCTION

EXTERNAL

AMALGAMATION

Merger method

Purchasemethod

ABSORBTION

AQUSITION

INTERNAL

Alteration of share capital

Reduction of Share capital

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EXTERNAL RE-CONSTRUCTION

When a company is suffering losses for the past several years and facing

financial crisis, the company can sell its business to another newly formed

company. Actually, the new company is formed to take over the assets and

liabilities of the old company. This process is called external

reconstruction.

In other words, external reconstruction refers to the sale of the business of

existing company to another company formed for the purposed. In external

reconstruction, one company is liquidated and another new company is

formed. The liquidated company is called "Vendor Company" and the new

company is called "Purchasing Company". Shareholders of vendor

company become the shareholders of purchasing company.

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AMALGAMATION

AMALGAMATION IS UNION OF TWO OR MORE COMPANIES MADE WITH AN INTENTION TO FORM A NEW COMPANY

THERE ARE TWO TYPE OF METHOD FOR AMALAGAMATION

Pooling of interest method (merger method) Purchasing method

Amalgamation accounting was stated in AS14

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MERGER METHOD

Under this method is a genuine pooling not merely of assets and liabilities of the amalgamating companies but also of the share holders interest and of the business of the companies

Under this method all the assets and liabilities not only but also all reserves also should be transferred at there carrying amount

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PURCHASE METHOD

A mode by which one company acquires another company and as a consequence the shareholders of the company which is acquired normally do not continue to have a proportionate share in the equity of the company

Under this method they will not bound to take all asset and liabilities of transferee company

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AS-14* All asset and liabilities of the transferor company become, after

amalgamation , the asset and liabilities of the transferee company

* Shareholders holding not less than 90% of the face value of the equity shares of the transferor company [other than the equity share already held therein , immediately before the amalgamation , by transferee company or its subsidiaries or there nominee’s] become equity share holders of the transferee company by virtue of amalgamation

* The consideration for the amalgamation receivable by those equity share holders of the transferee company who agree to become equity share holders of the transferee company , except that cash may be paid in respect of any fractional shares

* The business of the transferor company is intended to be carried on after

the amalgamation by the transferee company

* No adjustment is instated to be made to be book value of the asset and liabilities of the transferor company when they are incorporated in the financial statement of the transferee company (except to ensure the uniformity of accounting policies )

 

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ABSORPTION

Absorption is the process under which an existing large company purchases the business of another small company or companies doing similar business. In other words, when an existing company takes over the business of one or more existing companies carrying similar business, it is called absorption. The company whose business is acquired is liquidated. But, no new company is formed. The company which takes over the business is called absorbing or purchasing company and the company, the business of which is taken over is called absorbed or vendor company. The accounting record of absorption is similar to that of amalgamation

One or more companies are liquidated. No new company is formed. The nature of business of both companies is similar. Generally, larger company purchase the business of smaller

company

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ACQUSITION

A corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company's stock or a combination of both.

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INTERNAL RE-CONSTRUCTION

Internal reconstruction refers to the internal re-organization of the financial structure of a company. It is also termed as re-organization which permits the existing company to be continued. Generally, share capital is reduced to write off the past accumulated losses of the company. The accounting procedure of internal reconstruction is distinct from that of amalgamation, absorption and external reconstruction.

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Reduction of share capital

Sometimes there may be a genuine necessity for the reduction of capital. This power is, given by Section 100 of the Companies Act,

* Methods of Reduction in Share Capital:There are three ways to give effect to the scheme of Reduction in Share Capital. These are as follows:(1) By extinguishing or reducing the liability on any of its shares.(2) By paying off any paid-up share capital which is in excess of what is required by the company.(3) By cancelling any paid- up capital which is lost or is unrepresented by any available assets.

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Alteration of share capital

Memorandum of Association contains capital clause of a company. Under Section 94 of the Companies A company can alter share capital in any of the following ways:(a) The company may increase its capital by issuing new shares.(b) It may consolidate the whole or any part of its share capital into shares of larger amount.(c) It may convert shares into stock or vice versa.(d) It may sub-divide the whole or any part of it’s share capital into shares of smaller amount.(e) It may cancel those shares which have not been taken up and reduce its capital accordingly.

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some real life examples

*Face book acquire whatsapp*Hutch amalgamated with Vodafone *Nokia absorbed by Microsoft *BPL reconstructed into Videocon*DOCOMO change their structure*ASIANET absorbed by STAR group

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THANK YOU ALL

jijosajiepz@gmail.com