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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Bharat Ltd and Kaveri Ltd amalgamate, and the amalgamation is in the nature of merger. Kaveri Ltd (transferor) has equity share capital of ₹10,00,000. Bharat Ltd (transferee) issues equity shares with a total face value of ₹8,00,000 to Kaveri Ltd's shareholders, and there is no other consideration. Under the pooling of interests method as per AS 14, how is the ₹2,00,000 difference treated in Bharat Ltd's books?

The ₹2,00,000 difference is credited to the reserves of Bharat Ltd. In a merger accounted by pooling of interests, the excess of the transferor's share capital over the shares issued is adjusted in reserves, not shown as goodwill or capital reserve, which belong to the purchase method.

  1. ACredited to the reserves of Bharat LtdCorrect
  2. BDebited to goodwill in Bharat Ltd's books
  3. CCredited to Capital Reserve as a gain on bargain purchase, shown separately from revenue reserves
  4. DDebited to the Profit and Loss Account of Bharat Ltd

Explanation

Under the pooling of interests method, the difference between the share capital issued (plus any other consideration) and the share capital of the transferor is adjusted in reserves. Here the transferor's capital of ₹10,00,000 exceeds the ₹8,00,000 issued, so ₹2,00,000 is credited to reserves. Goodwill or capital reserve arises only under the purchase method.

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