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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Godavari Ltd amalgamates Krishna Ltd in the nature of merger. Krishna has equity share capital ₹5,00,000, general reserve ₹1,20,000 and profit and loss balance ₹80,000. Godavari issues 60,000 equity shares of ₹10 each, fully paid, to Krishna's shareholders as the whole consideration. Under the pooling of interests method, what is the net amount of Krishna's reserves that remains incorporated in Godavari's books after adjusting the difference?

Net reserves incorporated are ₹1,00,000. In pooling of interests the transferor's reserves of ₹2,00,000 are carried over, but the excess of shares issued (₹6,00,000) over the transferor's share capital (₹5,00,000) is deducted from reserves, leaving ₹1,00,000.

  1. A₹1,00,000Correct
  2. B₹2,00,000
  3. C₹3,00,000
  4. D₹80,000

Explanation

Consideration at face value = 60,000 × 10 = ₹6,00,000, against Krishna's share capital of ₹5,00,000. The excess of ₹1,00,000 is adjusted against reserves. Krishna's reserves of ₹2,00,000 are incorporated, so the net is 2,00,000 − 1,00,000 = ₹1,00,000. Adding the excess instead gives ₹3,00,000, which is wrong.

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