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CS Professional · Corporate Restructuring, Valuation and Insolvency · Accounting in Corporate Restructuring: Concept and Accounting Treatment

Rao Ltd merges with Sen Ltd under the pooling of interests method. Rao's paid-up equity share capital is ₹10,00,000 and its general reserve is ₹3,00,000. Sen issues equity shares of aggregate face value ₹9,00,000 to Rao's shareholders. What is the treatment of the difference between Rao's share capital and the share capital issued?

₹1,00,000 is credited to reserves. Under pooling of interests, the transferor's share capital of ₹10,00,000 exceeds the ₹9,00,000 face value issued, and the difference is adjusted in reserves. No goodwill arises, and the transferor's existing reserves are carried over separately.

  1. A₹1,00,000 credited to reservesCorrect
  2. B₹1,00,000 debited to goodwill
  3. C₹4,00,000 credited to reserves
  4. D₹3,00,000 credited to capital reserve

Explanation

Under pooling, the difference between the share capital issued and the transferor's share capital is adjusted in reserves. Here ₹10,00,000 minus ₹9,00,000 is ₹1,00,000, a credit to reserves. Rao's general reserve of ₹3,00,000 is separately carried over in the same form. Goodwill is not recognised under pooling.

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