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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Tapti Ltd is merged into Narmada Ltd and the amalgamation is in the nature of merger, accounted under the pooling of interests method. Tapti's equity share capital is ₹8,00,000, general reserve ₹2,00,000 and profit and loss balance ₹1,00,000. Narmada Ltd issues equity shares of face value ₹7,00,000 to Tapti's shareholders as the whole consideration. By how much does the total of reserves and surplus in Narmada Ltd's books increase because of the amalgamation?

The increase is ₹4,00,000. Under pooling of interests, the transferor's general reserve of ₹2,00,000 and profit and loss balance of ₹1,00,000 are carried over, and the ₹1,00,000 excess of its share capital over the shares issued is also credited to reserves.

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

Explanation

Under pooling, Tapti's reserves are preserved: general reserve 2,00,000 and profit and loss 1,00,000. The excess of Tapti's share capital (8,00,000) over the share capital issued (7,00,000) is ₹1,00,000, which is credited to reserves. Total increase = 2,00,000 + 1,00,000 + 1,00,000 = ₹4,00,000. The ₹3,00,000 option omits the credit arising from the share capital difference.

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