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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Tara Ltd amalgamates with Uday Ltd in an amalgamation in the nature of merger, using the pooling of interests method. Tara Ltd's balances are: equity share capital ₹10,00,000, general reserve ₹3,00,000, securities premium ₹50,000 and surplus in the statement of profit and loss ₹1,00,000, so its net assets are ₹14,50,000. Uday Ltd discharges the consideration by issuing 80,000 equity shares of ₹10 each at par. What total amount will be reflected as Tara Ltd's reserves in Uday Ltd's books after the amalgamation? Ignore statutory reserves.

The total reserves are ₹6,50,000. Under pooling of interests, existing reserves of ₹4,50,000 are preserved. Share capital issued is ₹8,00,000 against Tara's capital of ₹10,00,000, and the ₹2,00,000 shortfall is credited to reserves. The total then ties to net assets of ₹14,50,000.

  1. A₹4,50,000
  2. B₹6,50,000Correct
  3. C₹2,00,000
  4. D₹2,50,000

Explanation

The consideration is 80,000 × ₹10 = ₹8,00,000, against Tara Ltd's share capital of ₹10,00,000. The ₹2,00,000 difference is added to reserves. Total reserves are therefore ₹4,50,000 + ₹2,00,000 = ₹6,50,000. Check: ₹8,00,000 + ₹6,50,000 = ₹14,50,000, the net assets. Ignoring the difference gives ₹4,50,000, which is wrong. Debiting the difference gives ₹2,50,000, which is also wrong.

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