Financial Reporting and Ethics - The Institute of Chartered ...

AMALGAMATION, ABSORPTION AND RECONSTRUCTIONThe following transactions or events are usually accounted for in the realisationaccount:(a) Debit all assets at book values to realisation account;(b) Determine the purchase consideration and credit it to the realisationaccount;(c) Amalgamation, dissolution or liquidation expenses should be debitedto realisation account. This will in effect reduce the profit on realisationor increase the loss on realisation(d) Profit or loss on realisation is determined; that is, the balance onrealiation account is transferred to the sundry members’ account(ordinary).3.5 NEW COMPANY ACCOUNTThis is the account where the purchase consideration and related transactionsare treated. The purchase consideration, when agreed, is debited to this account(remember that the credit entry goes to realisation account) while transactionsrelating to the purchase consideration are credited to the account whensettlement of the agreed purchase consideration is made. The account cantherefore be regarded as a “self balancing” account.3.5.1 Sundry Members Account (Ordinary Shares and PreferenceShares)The following accounting transactions/events are effected in the sundrymembers account:(a) Transfer the components of the shareholders’ fund (for example,ordinary shares, preference shares, and reserves) to the accountby debiting each of the components of the shareholders’ fundand crediting sundry members’ account;(b) The profit/loss on realisation is also transferred to this account;and(c) Each of the components of purchase consideration, when settlementis effected as agreed, including cash, are transferred to thisaccount and the account will automatically balance.This account is similar to the partners’ account in the amalgamation ofpartnership.It should be noted, however, that if there is more than one class ofpreference shares, the classes should be separated and different ledgeraccounts opened for each class. For example, if in the balance sheetthere are 10% preference shares, 8% cumulative preference shares and5% redeemable preference shares, these are three different classes ofpreference shares. Therefore, three different sundry members preferenceaccounts must be opened to present each of them separately.21