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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Nila Ltd amalgamates with Omkar Ltd (purchase method). Omkar's ₹10,00,000 statutory reserve (a Development Allowance Reserve under the Income-tax law) is to be maintained after the amalgamation and the transferee accepts this requirement. Net assets acquired exclusive of this reserve are ₹30,00,000 at agreed values, and purchase consideration is ₹33,00,000. What is the correct treatment?

Goodwill is ₹3,00,000 (consideration ₹33,00,000 less net assets ₹30,00,000). Because the statutory reserve of ₹10,00,000 must be preserved, the transferee credits that reserve and debits Amalgamation Adjustment Account with the same amount; goodwill is not affected.

  1. AGoodwill ₹3,00,000 only, and the reserve is ignored
  2. BGoodwill ₹3,00,000 and a Amalgamation Adjustment Account debited ₹10,00,000, with the reserve credited ₹10,00,000Correct
  3. CCapital reserve ₹7,00,000
  4. DGoodwill ₹13,00,000 and reserve is not recorded

Explanation

Goodwill = 33,00,000 − 30,00,000 = ₹3,00,000. Under AS 14, where statutory reserves of the transferor must be kept, the transferee records the reserve by crediting it and debiting Amalgamation Adjustment Account for the same ₹10,00,000, which is later reversed when the reserve is reversed. Option A ignores the requirement. Option C and D wrongly alter the goodwill computation.

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