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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Veda Textiles Ltd. and Kiran Fabrics Ltd. amalgamate, and the amalgamation satisfies every condition for a merger under AS 14 and is accounted for by the pooling of interests method. Kiran Fabrics Ltd. (transferor) has equity share capital of ₹10,00,000. Veda Textiles Ltd. (transferee) issues its own equity shares of aggregate face value ₹8,00,000 and pays ₹50,000 in cash to Kiran's shareholders. How should the difference be treated in the books of Veda Textiles Ltd.?

Reserves are credited by ₹1,50,000. In pooling of interests, the transferor's share capital of ₹10,00,000 exceeds the shares issued plus cash paid (₹8,50,000), and this difference is added to the transferee's reserves rather than shown as goodwill or capital reserve.

  1. AReserves are debited by ₹1,50,000
  2. BReserves are credited by ₹2,00,000
  3. CReserves are credited by ₹50,000
  4. DReserves are credited by ₹1,50,000Correct

Explanation

Under pooling of interests, the share capital of the transferor (₹10,00,000) is compared with the share capital issued plus other consideration (₹8,00,000 + ₹50,000 = ₹8,50,000). The excess of ₹1,50,000 is adjusted in (added to) reserves. Crediting ₹2,00,000 wrongly ignores the cash paid.

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