Skip to content

Corporate Financial Reporting · Business Combination under Common Control

Pooling of Interests Method under Ind AS 103 Appendix C

Updated 11 October 2026 · Fact-checked

The pooling of interests method is the mandatory accounting for business combinations of entities under common control (Ind AS 103, Appendix C). The transferee records the transferor's assets and liabilities at carrying amounts, keeps reserves in the same form, issues shares at nominal value, and puts any difference in capital reserve. No goodwill arises.

Understand Pooling of Interests Method

A common control combination moves a business within a group. Before and after the deal, the same parent controls everything. Nothing really changes for the group, so Ind AS 103 does not treat it as a purchase. Appendix C requires the pooling of interests method instead.

Under pooling, you do not revalue anything. Assets and liabilities of the combining entities are shown at their carrying amounts. No fair value adjustments are made and no new assets or liabilities are recognised. The only adjustment allowed is to harmonise accounting policies. Because nothing is revalued, no goodwill is created.

Shares issued as consideration are recorded at nominal value. Any cash or non-cash consideration is also included, with non-cash assets taken at fair value. The difference between (share capital issued + any additional consideration) and the share capital of the transferor goes to capital reserve. Show it separately from other capital reserves and disclose its nature and purpose in the notes.

Reserves keep their identity. The transferor's General Reserve becomes the transferee's General Reserve, and likewise for Capital Reserve and Revaluation Reserve. So reserves that could be distributed as dividend before the combination remain distributable. Retained earnings of the transferor are added to the transferee's retained earnings, or alternatively moved to General Reserve, if any.

Comparatives are restated as if the combination had occurred from the beginning of the preceding period, whatever the actual date. If the combination happened after that date, prior period information is restated only from the actual date. Under the acquisition method, by contrast, assets are at fair value, goodwill or bargain purchase gain arises, and comparatives are not restated.

Key rules to remember

Capital reserve on pooling
Capital reserve = Transferor's share capital − (Share capital issued at nominal value + Additional consideration in cash or other assets)
If the result is negative, the difference is a debit and is adjusted against reserves; follow the question's instruction. Show it separately from other capital reserves.
Asset and liability values
Carrying amount in transferor's books = amount in transferee's books
Only change: harmonising accounting policies. No fair value, no new assets or liabilities.
Consideration
Securities at nominal value; cash as paid; non-cash assets at fair value
Per Appendix C paragraph 10.
Reserves
Transferor reserves → same-named reserves of transferee
Identity preserved. Retained earnings are aggregated or moved to General Reserve.
Comparatives
Restate as if combined from the beginning of the preceding period
If the combination occurred later than that date, restate only from that date.

How to solve Pooling of Interests Method questions

Use this sequence for any common control combination question.

  1. 1Confirm the entities are under common control (same parent, even if partly owned). If so, use pooling, not the acquisition method.
  2. 2List the transferor's assets and liabilities at carrying amounts. Ignore any fair values given, unless needed for non-cash consideration.
  3. 3Apply adjustments only for differences in accounting policies.
  4. 4Compute the consideration: shares at nominal value plus cash or other assets (at fair value). Do not use market value of shares.
  5. 5Compute the difference between consideration and the transferor's share capital, and post it to capital reserve (shown separately).
  6. 6Carry the transferor's reserves across by name. Add retained earnings or move to General Reserve as instructed.
  7. 7Eliminate inter-company balances if asked, and prepare the post-combination balance sheet by adding line by line.
  8. 8Note the restatement of comparatives and the Appendix C disclosures if the question asks.

Quickest way: Net assets check for capital reserve

When to use it: When the question asks only for the capital reserve or the post-merger balance sheet total.

  1. Take the transferor's share capital and consideration payable (nominal shares plus cash).
  2. Capital reserve = Share capital of transferor − consideration.
  3. Add all other transferor reserves to the same transferee reserves.
  4. Add assets and liabilities line by line at book values.
  5. Check: total assets equal total liabilities plus equity.

Common mistakes in Pooling of Interests Method

  • Recognising goodwill or bargain purchase gain

    Students carry over the acquisition method habit.

    Fix: Under pooling there is no goodwill. The difference goes to capital reserve.

  • Using fair values of assets

    The question gives fair values as a distraction.

    Fix: Use carrying amounts. Fair value matters only for non-cash consideration.

  • Recording issued shares at market value

    Confusion with purchase consideration.

    Fix: Securities are recorded at nominal value.

  • Merging all reserves into one capital reserve

    Students want to balance quickly.

    Fix: Preserve identity: General Reserve stays General Reserve. Only the consideration difference is a separate capital reserve.

  • Not restating comparatives

    Students treat the deal date as the start.

    Fix: Restate prior periods as if combined from the beginning of the preceding period, or from the later actual date.

  • Excluding partly-owned subsidiaries from common control

    Students think non-controlling interest breaks common control.

    Fix: Appendix C says the extent of non-controlling interests is not relevant; a partially-owned subsidiary is still controlled.

Worked examples

Example 1

Parent P Ltd holds control of both A Ltd and B Ltd. A Ltd absorbs B Ltd. B's net assets at carrying amount are ₹8,00,000 (assets ₹10,00,000, liabilities ₹2,00,000), with share capital ₹5,00,000, General Reserve ₹2,00,000 and retained earnings ₹1,00,000. A issues 40,000 equity shares of ₹10 each (nominal) to B's shareholders. Fair value of A's shares is ₹25 each. Compute the capital reserve and state the reserves of A taken over.

Show the solution
  1. Pooling applies because A and B are under common control.
  2. Shares are recorded at nominal value: 40,000 × ₹10 = ₹4,00,000. Market value is ignored.
  3. No cash or other consideration, so total consideration = ₹4,00,000.
  4. Difference = transferor's share capital ₹5,00,000 − ₹4,00,000 = ₹1,00,000 credit, shown as a separate capital reserve.
  5. General Reserve ₹2,00,000 is added to A's General Reserve. Retained earnings ₹1,00,000 are added to A's retained earnings (or moved to General Reserve).
  6. Check: net assets ₹8,00,000 = ₹4,00,000 + ₹1,00,000 + ₹2,00,000 + ₹1,00,000.

Answer: Capital reserve ₹1,00,000, shown separately; no goodwill. General Reserve ₹2,00,000 and retained earnings ₹1,00,000 are carried over.

Example 2

Using the same facts, now A Ltd also pays ₹50,000 cash to B's shareholders in addition to issuing 40,000 shares at nominal value ₹10. Pass the journal entry in A's books and find the capital reserve.

Show the solution
  1. Consideration = shares ₹4,00,000 + cash ₹50,000 = ₹4,50,000.
  2. Difference = ₹5,00,000 − ₹4,50,000 = ₹50,000 credit to capital reserve.
  3. Journal entry: Dr Assets (carrying amounts) ₹10,00,000; Cr Liabilities ₹2,00,000; Cr Equity share capital ₹4,00,000; Cr Cash ₹50,000; Cr General Reserve ₹2,00,000; Cr Retained earnings ₹1,00,000; Cr Capital reserve ₹50,000.
  4. Check totals: debit ₹10,00,000; credits 2,00,000 + 4,00,000 + 50,000 + 2,00,000 + 1,00,000 + 50,000 = ₹10,00,000.

Answer: Capital reserve is ₹50,000 (credit). The entry balances at ₹10,00,000 with no goodwill.

Exam tips

  • Look for the words 'same parent' or 'group company'. They signal pooling, so ignore fair values.
  • Always show the capital reserve from the consideration difference as a separate line.
  • Write the three features of pooling in theory answers: carrying amounts, no fair value or new items except policy harmonisation, and restated comparatives.
  • In acquisition versus pooling comparisons, cover valuation, goodwill, reserves and comparatives.
  • Learn the four disclosures in paragraph 13: names and nature of business, date of control, shares issued and percentage exchanged, and the difference and its treatment.

Practice questions from Business Combination under Common Control

Pooling of Interests Method in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Pooling of Interests Method: frequently asked questions

When is the pooling of interests method used under Ind AS 103?

It is used for business combinations of entities or businesses under common control, such as transfers of subsidiaries or businesses within a group. Appendix C requires it. Other combinations use the acquisition method.

Is goodwill recognised under pooling of interests?

No. Assets and liabilities stay at carrying amounts and no new assets are recognised. The difference between consideration and the transferor's share capital goes to capital reserve.

How is the difference between the acquisition method and pooling method explained?

Acquisition uses fair values, recognises goodwill or a bargain purchase gain, and does not restate comparatives. Pooling uses carrying amounts, has no goodwill, preserves reserves and restates comparatives.

What happens to the transferor's retained earnings?

They are added to the transferee's retained earnings. Alternatively, they can be transferred to General Reserve, if any.