Skip to main content

Amalgamation, Absorption and Reconstruction of Company

When a new company is set up to acquire the business of existing companies, it is amalgamation. In order to take the economies of scale, to avoid competition and maintenance of prices, two of more than two joint stock companies may combine their undertakings and become one joint stock company. So amalgamation is a blending of two or more existing undertakings into one undertakings, the shareholders of each blending company becoming substantially the shareholders in the company when is to carry on the blended undertakings.
     All the assets and liabilities of the transfer company become, after amalgamation, the assets and liabilities of the transferee company. Shareholders holding not less than 90% of the face value of the equity shares of the transfer company become equity shareholders of the transferee company by virtue of amalgamation. The business of the transfer company is intended to be carried on, after the amalgamation by the transferee company. No adjustment is intended to be made to the book values of the assets and liabilities of the transfer company when they are incorporated in the financial statements.

Comments

Post a Comment

Popular posts from this blog

Wealth maximization

Wealth maximization means the goal of the firm should be to maximize the market value of its equity shares which represents the value of the firm to its equity shareholders. Wealth maximization means maximizing the net present value of a course of action. That financial action which has a positive net present value creates wealth and therefore is desirable. It is consistent with the objective of maximizing owner's economic welfare. It implies the fundamental objective of a firm should be to maximize the market value to its shares. In corporation, a management team is elected to manage its activities. Management is supposed to operate in  the best interests of the shareholders. Some have argued that the managers could work just enough to keep stockholders' at a "fair" or "reasonable" level and then devote the remainder of their efforts and resources to public service activities, to employee benefits of higher executive salaries. Similarly, the stockholders ge...
3 comments
Read more

Working Capital

Capital required for a business can be classified under two categories: fixed capital and working capital. Long-term funds are required to create production facilities through purchase of fixed assets such as plant, machinery, land, building, furniture, etc. The capital which is used in this regard is fixed capital. Funds are also needed for short term purpose for the purchase of raw materials, payments to wages and other day to day expenses, etc. These funds are known as working capital. So this fund is used on current assets such are being constantly converted into cash. So it is also known as revolving or circulating capital.Tere are two conclusion of working capital Gross concept : In the broad sense, the term 'working capital' refers to the gross working capital and represents the amount of funds invested in current assets. Thus, the gross working capital is the capital invested in total current assets of the enterprise. Net working capital concept : In a narrow sense,...
1 comment
Read more

Cost of capital

The cost of capital of a firm is the minimum rate of return expected by its investors. The capital used by a firm may be in the form of debt, preferences capital. retained earning and equity shares. Hence, to achieve the objective of wealth maximization, a firm must earn a rate of return more than its cost of capital. Hence, the cost of capital to a company is the rate of return. It must earn its investments in order to satisfy the expectations of investor who provide long-term funds to it. Therefore, the firm's cost of capital will be the overall, or average, required rate of return on the aggregate of the investment projects. Importance of cost of capital : The following are the importance of significances of cost of capital a) Financial standard : The cost of capital is used as a financial standard for evaluating the investment projects. To calculate Net Present Value, it is essential. So it is used for evaluating the desirability of the investment project. b) Determination ...
Post a Comment
Read more