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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Vihaan Ltd absorbed Arjun Ltd in an amalgamation that satisfies every condition of an amalgamation in the nature of merger under AS 14. Arjun Ltd's balance sheet showed General Reserve of Rs 4,00,000 and Profit and Loss Account (credit) of Rs 1,00,000. Under the pooling of interests method, how will these balances be treated in Vihaan Ltd's books?

Under the pooling of interests method, the transferee records the transferor's reserves, including general reserve and profit and loss balance, in the same form and identity as in the transferor's books. They are not converted into capital reserve or goodwill. Only differences in share capital are adjusted against reserves.

  1. ABoth are credited to Capital Reserve
  2. BBoth are incorporated in Vihaan Ltd's books in the same form and identity as they stood in Arjun Ltd's booksCorrect
  3. CBoth are transferred to Amalgamation Adjustment Reserve
  4. DBoth are adjusted against Goodwill arising on amalgamation

Explanation

In pooling of interests, reserves of the transferor company are incorporated by the transferee in the same form as they appeared in the transferor's books. The Capital Reserve option wrongly applies the purchase method idea of a new capital reserve. Any difference is adjusted in the general reserve, not treated as goodwill.

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