CA Inter P1 · Chapter 11 · Question 4 of 10
Case: Tanvi Ltd amalgamates with Uday Ltd in an amalgamation in the nature of merger. Tanvi Ltd has share capital of ₹20,00,000, general reserve of ₹8,00,000 and a credit balance in profit and loss of ₹3,00,000. Uday Ltd issues equity shares with a face value of ₹22,00,000 as consideration. Under the pooling of interests method, the net increase in the aggregate reserves (including the profit and loss balance) of Uday Ltd as a result of the amalgamation is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) ₹9,00,000
Explanation
Under pooling of interests, the transferor's reserves are recorded at their existing amounts: 8,00,000 + 3,00,000 = 11,00,000. AS 14 requires the excess of share capital issued over the transferor's share capital (22,00,000 - 20,00,000 = 2,00,000) to be adjusted in reserves; no goodwill arises. Net increase in Uday Ltd's reserves = 11,00,000 - 2,00,000 = ₹9,00,000, whichever reserve the 2,00,000 is debited to.
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