Corporate Restructuring, Valuation and Insolvency · Accounting in Corporate Restructuring: Concept and Accounting Treatment

AS 14 Amalgamation: Purchase Method vs Pooling of Interests Method

Updated 11 October 2026 · Fact-checked

AS 14 splits amalgamations into two types. An amalgamation in the nature of merger uses the pooling of interests method: assets, liabilities and reserves carry over at book value. An amalgamation in the nature of purchase uses the purchase method: assets and liabilities are taken at book or fair value, and the difference from the purchase consideration is goodwill or capital reserve.

Understand AS 14 Amalgamation: Purchase vs Pooling Method

AS 14 (Accounting for Amalgamations) tells the transferee company how to record an amalgamation. It first asks one question: is this a merger, or is it really a purchase? The answer decides the accounting method.

An amalgamation in the nature of merger is one where the shareholders of the two companies pool their interests. Neither side is the buyer. So the books of the transferor are simply added to those of the transferee. This is the pooling of interests method.

An amalgamation in the nature of purchase is one where the transferee is in effect buying the transferor. The business is acquired, not shared. So the transferee records it like an acquisition, using the purchase method.

An amalgamation is in the nature of merger only if all the conditions in AS 14 are met. If even one fails, it is a purchase. That is the test you apply first in every question.

Note for your paper: Ind AS 103 applies to companies following Ind AS, and uses the acquisition method (with Appendix C for common control). AS 14 questions are set for companies following the Accounting Standards, so read the question to see which framework it names.

Key rules to remember

Conditions for amalgamation in the nature of merger (all five must be met): 1) All assets and liabilities of transferor become those of transferee. 2) Shareholders holding at least 90% of the face value of transferor's equity shares (other than shares already held by the transferee or its nominees) become equity shareholders of the transferee. 3) Consideration to those shareholders is wholly by issue of equity shares in the transferee (cash only for fractional shares). 4) The business of the transferor is intended to be carried on by the transferee. 5) No adjustment is made to book values of assets and liabilities, except to ensure uniform accounting policies.; Fail any one and it is an amalgamation in the nature of purchase.
Pooling of interests method: Assets, liabilities and reserves of transferor are recorded at existing book values. Reserves are preserved in the same form. Difference = Share capital issued by transferee − Share capital of transferor, adjusted in reserves.; If capital issued is more than transferor's capital, the excess reduces reserves. If less, the difference is added to reserves (capital reserve in the standard's wording).
Purchase method: Goodwill / (Capital reserve) = Purchase consideration − Net assets taken over (at book or fair value as the transferee decides); If consideration exceeds net assets, the excess is goodwill. If less, the shortfall is capital reserve.
Purchase consideration: Purchase consideration = Value of equity shares, preference shares, other securities and cash paid by transferee to the shareholders of the transferor; Do not include amounts the transferee pays to discharge the transferor's liabilities.
Statutory reserves in purchase method: Statutory reserves of transferor are recorded in the transferee's books by debiting an 'Amalgamation Adjustment Account' (shown as a reserve adjustment) and crediting the reserve, so they can be shown in the balance sheet.; Other reserves (general reserve, profit and loss) of the transferor are not carried over in the purchase method.
Goodwill treatment: Goodwill arising on amalgamation is amortised to income over a period not exceeding five years, unless a longer period can be justified.; Capital reserve is not amortised.

How to solve AS 14 Amalgamation: Purchase vs Pooling Method questions

Use this order for any AS 14 question. It stops you from picking the wrong method.

1Read the facts and check the five merger conditions one by one. Note the 90% test and the nature of consideration (equity shares only, or cash and other securities too).
2Decide the type: merger (all conditions met) or purchase (any condition fails). Say this in one line in your answer.
3Compute the purchase consideration. List shares issued, cash and other items, valued as the question states.
4Compute net assets taken over: assets taken over less liabilities taken over, at book value for pooling, and at book or fair value for purchase.
5Find the difference. Pooling: compare share capital issued with transferor's share capital. Purchase: compare consideration with net assets to get goodwill or capital reserve.
6Deal with reserves. Pooling: carry them forward in the same form. Purchase: do not carry general reserves; carry statutory reserves through the Amalgamation Adjustment Account.
7Pass the journal entries in the transferee's books, then show the balance sheet if asked.
8State the closing treatment: goodwill amortised within five years unless a longer period is justified.

Quickest way: Merger or purchase in one minute

When to use it: Use when a question asks only for the type, the difference between methods, or the treatment of reserves and goodwill, and you need to save time.

Look for the red flags: consideration partly in cash or preference shares, less than 90% of transferor shareholders joining, or assets revalued. Any one means purchase.
If no red flag, say merger and use pooling: add book values and carry forward reserves.
Purchase: write consideration minus net assets. Positive is goodwill, negative is capital reserve.
Pooling: write share capital issued minus transferor's share capital, and adjust it in reserves.
Add one line each on reserves and goodwill amortisation to finish the answer.

Common mistakes in AS 14 Amalgamation: Purchase vs Pooling Method

Calling every amalgamation paid in shares a merger
Students check only the mode of payment and forget the other conditions.
Fix: Test all five conditions. Shares-only payment is only one of them.
Treating goodwill as arising under pooling
Students apply the purchase formula to every question.
Fix: Under pooling no goodwill or capital reserve arises on the consideration. Only the share capital difference is adjusted in reserves.
Carrying forward the transferor's general reserve under the purchase method
The pooling rule is remembered and applied to both methods.
Fix: Under purchase, only statutory reserves are carried, through the Amalgamation Adjustment Account. Other reserves are not.
Adding the transferee's payment of the transferor's liabilities to purchase consideration
Students include everything the transferee pays or takes over.
Fix: Consideration is what shareholders of the transferor receive. Liabilities taken over are part of net assets, not consideration.
Using the wrong sign for the share capital difference in pooling
It is unclear which side is bigger.
Fix: If capital issued exceeds transferor's capital, debit reserves with the excess. If it is less, credit reserves with the shortfall.
Revaluing assets and still calling it a merger
Students forget the book value condition.
Fix: Any revaluation, other than aligning accounting policies, makes it a purchase.

Worked examples

Example 1

A Ltd absorbs B Ltd. B Ltd's assets are ₹10,00,000 (book value) and liabilities ₹3,00,000. B Ltd's equity share capital is ₹4,00,000 and general reserve is ₹3,00,000. A Ltd issues equity shares of ₹5,00,000 to B Ltd's shareholders, who all join A Ltd. The business will continue and there is no revaluation. Identify the type and pass the entries in A Ltd's books.

Show the solution

Check conditions: all assets and liabilities are taken over, 100% of shareholders join (at least 90% needed), consideration is wholly equity shares, business continues, and no revaluation. All five are met, so it is a merger. Use pooling.
Net assets taken over = ₹10,00,000 − ₹3,00,000 = ₹7,00,000. This equals B's capital plus reserve (₹4,00,000 + ₹3,00,000).
Share capital issued by A Ltd = ₹5,00,000. B Ltd's share capital = ₹4,00,000. Excess = ₹1,00,000, which is adjusted against reserves.
Entry 1: Assets A/c Dr ₹10,00,000; To Liabilities A/c ₹3,00,000; To Equity Share Capital ₹5,00,000; To General Reserve ₹2,00,000 (balancing figure).
Check: General reserve carried forward is ₹3,00,000 less the ₹1,00,000 excess = ₹2,00,000. The entry balances: 10,00,000 = 3,00,000 + 5,00,000 + 2,00,000.

Answer: It is an amalgamation in the nature of merger. Under pooling, A Ltd records assets ₹10,00,000, liabilities ₹3,00,000, issues share capital ₹5,00,000 and shows general reserve ₹2,00,000. No goodwill arises.

Example 2

X Ltd takes over Y Ltd. Y Ltd's assets are ₹12,00,000 and liabilities ₹2,00,000 (book value). X Ltd pays ₹6,00,000 in equity shares and ₹2,00,000 in cash to Y's shareholders. Y Ltd's general reserve is ₹1,50,000. Find the type, goodwill or capital reserve, and the treatment of reserve.

Show the solution

Part of the consideration is cash, so the all-equity-shares condition fails. It is an amalgamation in the nature of purchase.
Purchase consideration = ₹6,00,000 + ₹2,00,000 = ₹8,00,000.
Net assets taken over at book value = ₹12,00,000 − ₹2,00,000 = ₹10,00,000.
Consideration is less than net assets, so Capital Reserve = ₹10,00,000 − ₹8,00,000 = ₹2,00,000.
Entry: Assets A/c Dr ₹12,00,000; To Liabilities A/c ₹2,00,000; To Equity Share Capital/Securities ₹6,00,000 (as per face value and premium given); To Bank ₹2,00,000; To Capital Reserve ₹2,00,000.
Y's general reserve of ₹1,50,000 is not carried into X's books, since it is not a statutory reserve.

Answer: Purchase method applies. Purchase consideration is ₹8,00,000 and capital reserve is ₹2,00,000. The general reserve of Y Ltd is not carried forward. Capital reserve is not amortised.

Exam tips

Begin every answer with the merger-or-purchase test. Marks are often given for stating and applying the conditions.
Write the five conditions in short numbered form. Quote the 90% figure exactly.
In comparison questions, use points: treatment of reserves, goodwill, asset values and consideration.
Show the working for purchase consideration and net assets on the page, so marks are earned even if the final figure slips.
Check whether the question refers to AS 14 or Ind AS 103. Answer under the one named, and do not mix them.

Practice questions from Accounting in Corporate Restructuring: Concept and Accounting Treatment

AS 14 Amalgamation: Purchase vs Pooling Method in other exams

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

AS 14 Amalgamation: Purchase vs Pooling Method: frequently asked questions

What is the difference between purchase method and pooling of interests method?

Pooling applies to a merger. Assets, liabilities and reserves are carried at book value and no goodwill is created. The purchase method applies to a purchase-type amalgamation. Consideration is compared with net assets to find goodwill or capital reserve, and only statutory reserves are preserved.

When is an amalgamation in the nature of merger?

Only when all five AS 14 conditions are met. These cover transfer of all assets and liabilities, at least 90% of transferor equity shareholders joining, payment wholly in equity shares, continuation of the business, and no change in book values. If any one fails, it is a purchase.

How is goodwill treated under AS 14?

Goodwill arising on an amalgamation in the nature of purchase is amortised to income over a period not exceeding five years. A longer period is allowed only if it can be justified. Capital reserve, in contrast, is not amortised.

Is AS 14 still used for CS Professional?

The paper tests AS 14 for companies following Accounting Standards and Ind AS 103 for companies following Ind AS. Read the question to see which framework it names, and answer under that.