Consolidation

 Consolidation   is also called as amalgamation is the act of merging several things into one. In business, it is generally called as acquisitions and mergers of several smaller firms into much bigger or larger ones.  In financial accountancy, it refers to the aggregation of the financial statements of a group firm as a consolidated account. In taxation it refers to the treatment of the group of business organizations and other business entities as one entity for the tax purposes. According to “Halsbury's Laws of England” consolidation is referred to as a combination of two or more business organizations into one company. The shareholders of every merging business organization are considerably the shareholders of the blended undertakings.  There might be consolidation, either by transfer two or more business organization to a new business organization or to the transfer of one or more business organization to the existing business organization. Therefore the two concepts are considerably the same. But the term consolidation or amalgamation being merged are regiments or private schools.

There are three types of business combinations and they are as follows:

Statutory Merger: a business combination which results ion the liquidation of the acquired firm’s asset and the survival of the purchasing business organization.

Stock Acquisition: a business combination wherein the purchasing firm acquires the majority, more than fifty percent of the Common stock of the acquired firm and both firms survive.

Statutory Consolidation: a business combination which creates a new business organization wherein none of the preceding companies survive.

Amalgamation means the existing company that is taken over by another existing business organization.  In such situation of consolidation, the consideration might be paid in the form of cash or in ‘kind’ and in this cash the purchasing firm will survive.

Accounting Treatment

A parent firm could acquire another firm in two ways:

• By buying the common stock of another firm.
• By buying the net assets.

Questionnaire:

• What is Consolidation?
• What are the types of business combinations?