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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Rajat Ltd absorbs Sindhu Ltd in an amalgamation in the nature of merger (pooling of interests method). Sindhu Ltd's balances: equity share capital ₹10,00,000, 10% preference share capital ₹5,00,000, general reserve ₹4,00,000, profit and loss account (credit) ₹2,00,000. Rajat Ltd issues preference shares of ₹5,00,000 with identical rights to preference holders, and 1,20,000 equity shares of ₹10 each to equity holders. There are no other items and the net assets taken over equal the total of these balances. What is the total amount of Sindhu Ltd's reserves that will appear in Rajat Ltd's books after the amalgamation?

Reserves of ₹4,00,000 appear. Under pooling of interests, Sindhu's reserves of ₹6,00,000 are carried over, but shares issued of ₹17,00,000 exceed its share capital of ₹15,00,000 by ₹2,00,000, and this excess is deducted from reserves, leaving ₹4,00,000.

  1. A₹6,00,000
  2. B₹4,00,000Correct
  3. C₹8,00,000
  4. D₹2,00,000

Explanation

Net assets = 10 + 5 + 4 + 2 = ₹21,00,000. Share capital issued = 5,00,000 + 12,00,000 = ₹17,00,000 against transferor's share capital of ₹15,00,000, so ₹2,00,000 excess is adjusted against the reserves. Reserves incorporated = 4,00,000 + 2,00,000 = 6,00,000; less 2,00,000 = ₹4,00,000. Keeping ₹6,00,000 ignores the adjustment, and adding the excess gives ₹8,00,000.

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