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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Sundaram Ltd amalgamates with Kaveri Ltd. The amalgamation is in the nature of merger, and Kaveri Ltd (transferee) uses the pooling of interests method. Kaveri Ltd takes over the general reserve and other reserves of Sundaram Ltd. How should these reserves be shown in Kaveri Ltd's books?

Under the pooling of interests method, the transferee records the transferor's reserves in the same form and with the same identity as in the transferor's books. They are not merged into capital reserve, credited to securities premium or used to write off goodwill, because pooling preserves the original character of reserves.

  1. AAggregated into a single capital reserve
  2. BPreserved in the same form and identity as they appeared in Sundaram Ltd's booksCorrect
  3. CCredited to securities premium account
  4. DWritten off against any goodwill arising on amalgamation

Explanation

Under the pooling of interests method in AS 14, the reserves of the transferor company are recorded in the transferee's financial statements in the same form in which they appeared in the transferor's statements. Treating them as capital reserve, securities premium or a set-off against goodwill would alter their identity, which pooling does not permit.

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