Skip to content

CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Vihaan Industries Ltd absorbed Kaveri Traders Ltd in an amalgamation in the nature of purchase and recorded goodwill arising on amalgamation in its books. As per AS 14, how should this goodwill be treated?

Goodwill arising on an amalgamation in the nature of purchase is amortised to income systematically over its useful life. AS 14 presumes this life to be no more than five years unless a longer period is justified. It is not carried indefinitely or adjusted against reserves.

  1. AWritten off immediately to the Securities Premium Account
  2. BAmortised to income on a systematic basis over its useful life, generally not exceeding five years unless a longer period can be justifiedCorrect
  3. CCarried forward without amortisation until the business is sold
  4. DAdjusted against the general reserve of the transferor company

Explanation

AS 14 requires goodwill arising on amalgamation in the nature of purchase to be amortised to income on a systematic basis over its useful life. The useful life is presumed not to exceed five years unless a somewhat longer period can be justified. Leaving it unamortised or adjusting it against reserves is not permitted.

Did you get it right without looking?

One question tells you little. A timed set on AS 14 Accounting for Amalgamations shows your real accuracy, how long you take and where you lose marks.

Practise AS 14 Accounting for AmalgamationsFree diagnostic mock

More AS 14 Accounting for Amalgamations questions