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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Kaveri Ltd absorbs Godavari Ltd in an amalgamation in the nature of merger (pooling of interests). Godavari Ltd's balances: equity share capital ₹8,00,000, general reserve ₹2,00,000, and statutory reserve ₹1,00,000 (required to be kept under law). Kaveri Ltd issues equity shares of ₹9,00,000 face value to Godavari Ltd's shareholders as the entire consideration. By how much will Kaveri Ltd's general reserve change on incorporating Godavari Ltd's balances, with the statutory reserve being kept with its identity?

Kaveri Ltd's general reserve increases by ₹1,00,000. Under the pooling method, Godavari's reserves are carried over, with the statutory reserve kept as it is. Shares issued exceed the transferor's share capital by ₹1,00,000, and this excess is deducted from the reserves. So ₹2,00,000 added less ₹1,00,000 leaves ₹1,00,000.

  1. AIncrease of ₹1,00,000Correct
  2. BIncrease of ₹2,00,000
  3. CIncrease of ₹3,00,000
  4. DNo change

Explanation

Net assets taken over are 8,00,000 + 2,00,000 + 1,00,000 = 11,00,000. Of this, ₹9,00,000 is credited to share capital and ₹1,00,000 to statutory reserve, which keeps its identity. The balance of ₹1,00,000 goes to general reserve. Equivalently, Godavari's general reserve of 2,00,000 is added and the 1,00,000 excess of shares issued over Godavari's share capital is deducted. Adding only ₹2,00,000 ignores this excess.

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