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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Meera Textiles Ltd absorbs Jaya Fabrics Ltd in an amalgamation in the nature of merger under AS 14. Jaya Fabrics has a General Reserve of Rs 6,00,000 and a Statutory Reserve of Rs 2,00,000 in its books. How should Meera Textiles deal with these reserves in its books after the merger under the pooling of interests method?

In an amalgamation in the nature of merger, the pooling of interests method requires the transferee to record the transferor's reserves in the same form and identity as in the transferor's books. They are neither converted to capital reserve nor ignored.

  1. ABoth reserves are incorporated in Meera's books in the same form and with the same identityCorrect
  2. BBoth reserves are transferred to Capital Reserve
  3. CBoth reserves are transferred to Goodwill account
  4. DBoth reserves are ignored and not recorded in Meera's books

Explanation

Under the pooling of interests method, the reserves of the transferor company are preserved and recorded in the transferee's books in the same form as they appeared in the transferor's books. Converting them to capital reserve is the treatment under the purchase method for non-statutory reserves, not for a merger.

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