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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Tara Ltd absorbs Uday Ltd in an amalgamation in the nature of merger, using the pooling of interests method. Uday Ltd's balances are: equity share capital ₹20,00,000, general reserve ₹5,00,000, statement of profit and loss (credit) ₹3,00,000 and statutory reserve ₹1,00,000. Tara Ltd issues 1,80,000 equity shares of ₹10 each at par to Uday's shareholders. Before the merger, Tara Ltd had general reserve ₹6,00,000 and profit and loss balance ₹4,00,000. Tara Ltd pays ₹30,000 as amalgamation expenses, charged to profit and loss. What are Tara Ltd's total reserves and surplus after the merger?

Total reserves and surplus are ₹20,70,000. The ₹2,00,000 by which the transferor's capital exceeds the shares issued is added to reserves, giving general reserve of ₹13,00,000. Profit and loss is ₹6,70,000 after the ₹30,000 expenses, and the statutory reserve of ₹1,00,000 is preserved, so the total is ₹20,70,000.

  1. A₹20,70,000Correct
  2. B₹21,00,000
  3. C₹16,70,000
  4. D₹19,70,000

Explanation

Share capital issued is ₹18,00,000 against Uday's ₹20,00,000, so the ₹2,00,000 difference is added to reserves. General reserve = 6,00,000 + 5,00,000 + 2,00,000 = ₹13,00,000. Profit and loss = 4,00,000 + 3,00,000 − 30,000 = ₹6,70,000. The statutory reserve of ₹1,00,000 is kept. Total = 13,00,000 + 6,70,000 + 1,00,000 = ₹20,70,000. Deducting the ₹2,00,000 instead of adding gives ₹16,70,000.

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