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CMA Final · Corporate Financial Reporting · Accounting for Business Combination and Restructuring

Under the pooling of interests method in Appendix C of Ind AS 103, Meru Ltd (transferee) absorbs Nila Ltd (transferor) under common control. Nila's General Reserve is ₹40 lakh and its Capital Reserve is ₹10 lakh. How are these reserves treated in Meru's books?

The reserves keep their identity. Under Appendix C of Ind AS 103, the transferor's General Reserve of ₹40 lakh appears as General Reserve and its Capital Reserve of ₹10 lakh as Capital Reserve in the transferee, so distributable reserves stay distributable.

  1. ABoth are transferred to Meru's Securities Premium Account
  2. BGeneral Reserve is shown as General Reserve ₹40 lakh and Capital Reserve as Capital Reserve ₹10 lakhCorrect
  3. CBoth are combined and shown as Capital Reserve ₹50 lakh
  4. DBoth are eliminated against goodwill on the combination

Explanation

Appendix C requires the identity of reserves to be preserved, appearing in the transferee in the same form as in the transferor. So the General Reserve stays a General Reserve and the Capital Reserve stays a Capital Reserve. Merging them into Capital Reserve loses that identity and would be wrong.

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