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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Kaveri Ltd amalgamated Narmada Ltd in the nature of merger, using the pooling of interests method. Narmada Ltd's balances on the date of amalgamation were: equity share capital ₹10,00,000; general reserve ₹2,00,000; statutory reserve ₹1,00,000; profit and loss account (credit) ₹50,000. Kaveri Ltd issued equity shares of total face value ₹9,00,000 to Narmada Ltd's shareholders as the whole consideration. All reserves are to be preserved in the same form. By how much do the reserves and surplus of Kaveri Ltd increase because of the amalgamation?

Reserves of Kaveri Ltd increase by ₹4,50,000. The transferor's reserves of ₹3,50,000 are carried over in the same form. In addition, the transferor's capital of ₹10,00,000 exceeds the ₹9,00,000 face value of shares issued, and this ₹1,00,000 difference is credited to reserves.

  1. A₹3,50,000
  2. B₹4,50,000Correct
  3. C₹2,50,000
  4. D₹5,50,000

Explanation

Under pooling of interests, the transferor's reserves are incorporated in the same form: 2,00,000 + 1,00,000 + 50,000 = 3,50,000. The share capital issued is ₹9,00,000 against the transferor's capital of ₹10,00,000, so the ₹1,00,000 difference is added to reserves. Total increase = 3,50,000 + 1,00,000 = ₹4,50,000. Option ₹3,50,000 ignores the difference, and ₹2,50,000 wrongly deducts it.

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