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

Alpha Ltd and Beta Ltd amalgamate to form Gamma Ltd. All assets and liabilities of Beta are taken over at book values, equity shareholders holding at least 90% of Beta's equity become shareholders of Gamma, consideration is discharged wholly in equity shares except cash for fractions, the business is intended to continue, and no adjustment is made to book values. Under AS 14, how is this amalgamation classified?

It is an amalgamation in the nature of merger, accounted for by the pooling of interests method, because all AS 14 conditions are satisfied: assets and liabilities taken over, 90% shareholders continuing, equity consideration, business continuing and no book value adjustments.

  1. AAmalgamation in the nature of merger, accounted for by the pooling of interests methodCorrect
  2. BAmalgamation in the nature of purchase, accounted for by the purchase method
  3. CAmalgamation in the nature of merger, accounted for by the purchase method
  4. DAmalgamation in the nature of purchase, accounted for by the pooling of interests method

Explanation

AS 14 conditions for a merger are met: assets and liabilities are taken over, at least 90% of the transferor's equity holders (other than those held by the transferee or its nominees) become equity holders of the transferee, consideration is in equity shares except cash for fractions, the business continues and no book value adjustments are made. Such an amalgamation uses the pooling of interests method. The purchase method applies only when any condition fails.

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