Distinguish between Amalgamation, Absorption and External Reconstruction of Company. Or Write short note on Timing difference and Permanent…

Difference between Amalgamation, Absorption and External Reconstruction Basis Amalgamation Absorption External Reconstruction Meaning Two or more companies are wound up and a new company is formed to take over their business. In this case, an existing company takes over the business of one or more existing companies. In this case, a newly formed company takes over the business of an existing company. Minimum number of Companies involved At least three companies involved. At least two companies involved. Only two companies are involved. Number of new resultant companies Only one resultant company is formed. Two companies are wound up to form a single resultant company. No new resultant company is formed. Only one resultant company is formed. Under this case a newly formed company takes over the business of an existing company. Objective Amalgamation is done to cut competition and reap the economies in large scale. Absorption is done to cut competition and reap the economies in large scale. External reconstruction is done to reorganise the financial structure of the company. Example A Ltd. and B Ltd. amalgamate to form C Ltd. A Ltd. takes over the business of another existing company B Ltd. B Ltd. is formed to take over the business of an existing company A Ltd. Or Matching of taxes against revenue for a period poses special problems arising from the fact that in number of cases, taxable income may be different from the accounting income. The divergence between taxable income may be different from the accounting income arises due to two main reasons: Firstly, there are differences between items of revenue and expenses as appearing in the statement of profit and loss and the items which are considered as revenue, expenses or deductions for tax purposes, known as Permanent Difference. Secondly, there are differences between the amount in respect of a particular item of revenue or expense as recognised in the statement of profit and loss and the corresponding amount which is recognised for the computation of taxable income, known as Timing Difference. Permanent differences are the differences between taxable income and accounting income which arise in one accounting period and do not reverse subsequently. For example, an income exempt from tax or an expense that is not allowable as a deduction for tax purposes. Timing differences are those differences between taxable income and accounting income which arise in one accounting period and are capable of reversal in one or more subsequent periods. For e.g., Depreciation, Bonus, etc.