Meaning Of 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.
Features Of Absorption
* 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.
