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Accounting for amalgamation- merger method

11 January 2017

In AS 14 it is stated that in case of pooling of interest or merger method of accounting, the difference between purchase consideration and share capital of transferor company is to be adjusted against "reserves". What is the specific meaning of reserve (ie. to say capital or revenue)? PROFIT should be credited to which reserve? LOSS should be adjusted against which reserve and in what sequence?

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Akash Dhatrak (CA final Student) (16 Points)
Replied 12 January 2017

As Per AS-14 In case of Amalgamation in the nature of Merger -

Difference Between Purchase Consideration ( always in Shares) and Networth (Book Networth) is Capital Profit or Capital Loss.

Since, The Merger and Acquisation is non -recurring event so, it is a capital nature transactions thus profit or loss on such transaction is adjusted against Reservce (which is of capital Nature).

Second query of yours is not clear ? Kindly Eloborate

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Manish Khanna (8 Points)
Replied 12 January 2017

Nice explanation.

It implies that

1. In case purchase consideration < share capital of transferor company (i.e. capital profit), it is to be credited to Capital Reserve.

2. In case purchase consideration > share capital of transferor company (i.e. capital loss), it is to be debited to Capital Reserve. However, if capital reserve is insufficient, the loss could be adjusted against revenue reserves like general reserve, P&L A/c.

plz tell if it is right???