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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Sundaram Textiles Ltd. amalgamates with Kaveri Mills Ltd. and the amalgamation satisfies all conditions of an amalgamation in the nature of merger, so the pooling of interests method is used. Kaveri Mills Ltd. (transferee) issues equity shares with a total face value of Rs 4,60,000 to the shareholders of Sundaram Textiles Ltd., whose paid-up share capital is Rs 5,00,000. Sundaram Textiles has a General Reserve of Rs 2,00,000. By what amount do the total reserves of Kaveri Mills Ltd. increase because of the amalgamation?

Reserves increase by Rs 2,40,000. Under pooling of interests, the transferor's General Reserve of Rs 2,00,000 is carried over, and the Rs 40,000 excess of its share capital over the shares issued is also credited to reserves. Together these raise the transferee's reserves by Rs 2,40,000.

  1. ARs 2,00,000
  2. BRs 2,40,000Correct
  3. CRs 1,60,000
  4. DRs 40,000

Explanation

Under pooling of interests, the transferor's reserves are preserved in the transferee's books. The transferor's share capital is Rs 5,00,000 and the shares issued are Rs 4,60,000, so the difference of Rs 40,000 is added to reserves. Total increase = 2,00,000 + 40,000 = Rs 2,40,000. Rs 1,60,000 comes from wrongly deducting the difference.

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