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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Meera Textiles Ltd absorbed Kaveri Fabrics Ltd. The amalgamation satisfies every condition for an amalgamation in the nature of merger under AS 14. Which method of accounting must the transferee company follow?

The pooling of interests method must be used. AS 14 prescribes it for every amalgamation in the nature of merger, where all conditions are met. The purchase method is reserved for amalgamations in the nature of purchase, and the transferee has no free choice between them.

  1. APurchase method
  2. BPooling of interests methodCorrect
  3. CEither method at the choice of the transferee
  4. DFair value method with goodwill recognised

Explanation

AS 14 requires that an amalgamation in the nature of merger be accounted for under the pooling of interests method. The purchase method is prescribed only for an amalgamation in the nature of purchase. The standard does not give the transferee a free choice, so option C is wrong.

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