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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Rishi Ltd and Sahil Ltd amalgamate. Sahil Ltd followed the written down value method of depreciation while Rishi Ltd follows straight line. Under the purchase method, what does AS 14 require regarding the differing accounting policies?

The accounting policies should be harmonised, and the effect of the change should be disclosed. AS 14 requires that where the amalgamating companies follow different policies, a uniform set is adopted after amalgamation, and the impact of the change on the financial statements is disclosed, so the differences cannot be ignored.

  1. ASahil's policy must be continued indefinitely for its assets
  2. BDifferences are ignored and no disclosure is needed
  3. CRishi must change to the WDV method for all assets
  4. DThe accounting policies should be harmonised and the effect of any change disclosed in the financial statementsCorrect

Explanation

AS 14 states that if different accounting policies are followed by the amalgamating companies, the differences should be disclosed, and a uniform set of policies should be adopted on amalgamation. The effect of changes is disclosed. Ignoring the differences contradicts the standard.

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