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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Ananya Ltd (transferor) is amalgamated with Bharat Ltd (transferee) on 1 April 2026. The amalgamation satisfies all conditions of an amalgamation in the nature of merger under AS 14, and Bharat Ltd uses the pooling of interests method. Ananya Ltd's net assets at book value are Rs 18,00,000, and its share capital is Rs 12,00,000 and general reserve is Rs 6,00,000. Bharat Ltd issues shares of face value Rs 14,00,000 to the shareholders of Ananya Ltd. How should the difference of Rs 2,00,000 be treated in Bharat Ltd's books?

In a merger accounted for by pooling of interests, no goodwill arises. Because the share capital issued (Rs 14,00,000) exceeds the transferor's share capital (Rs 12,00,000), the excess Rs 2,00,000 is adjusted against the transferee's reserves by debiting them.

  1. ADebited to Bharat Ltd's reserves as an adjustment, since the share capital issued exceeds the transferor's share capitalCorrect
  2. BRecognised as goodwill and amortised over 5 years
  3. CCredited to Capital Reserve
  4. DCredited to Securities Premium Account

Explanation

Under the pooling of interests method, the difference between the amount recorded as share capital issued plus other consideration and the share capital of the transferor is adjusted in reserves. Here 14,00,000 - 12,00,000 = 2,00,000 excess, which is debited to reserves. Goodwill is recognised only under the purchase method.

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