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Quick Reference on Accounting Standard (AS) 14

Download Quick Reference on Accounting Standard (AS) 14 Accounting for Amalgamations

This Standard deals with accounting for amalgamations and the treatment of any resultant goodwill or reserves.

This standard does not deal with cases of acquisitions which arise when there is a purchase by one company (referred to as the acquiring company) of the whole or part of the shares, or the whole or part of the assets, of another company (referred to as the acquired company) in consideration for payment in cash or by issue of shares or other securities in the acquiring company or partly in one form and partly in the other. The distinguishing feature of an acquisition is that the acquired company is not dissolved and its separate entity continues to exist.

Transferor company means the company which is amalgamated into another company.

Transferee company means the company into which a transferor company is amalgamated.

Amalgamations in the nature of

  • Merger: Pooling of interests method 5 Conditions Test
  • Purchase: When any one or more of the 5 conditions are not satisfied

Test for 5 conditions – For Merger

  • All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company.
  • Shareholders holding not less than 90% of face value of equity shares of the transferor company become equity shareholders of the transferee company.
  • Consideration to equity shareholders of the transferor company is discharged by the transferee company wholly by the issue of equity shares, except that cash may be paid in respect of any fractional shares.
  • Intention of the transferee company is to continue the business of the transferor company.
  • Transferred assets and liabilities are recorded in the books of the transferee company at book values of the transferor company except to ensure uniform accounting policies.

Methods of Accounting – Transferee company’s financial statements

Pooling of Interest method Purchase Method
Applicability Amalgamation in the nature of merger. Amalgamation in the nature of purchase.
Assets and liabilities Recorded at their existing carrying amounts (after making adjustments to ensure uniform accounting policies). Option 1: Recorded at their existing carrying amounts.

Option 2: Consideration to be allocated to individual identifiable assets and liabilities on the basis of their fair values at the date of amalgamation.

Reserves Identity of reserves is preserved. Only statutory reserves are recorded by debit to amalgamation adjustment account.
Difference between amount of purchase consideration and value of net assets of the transferee company Not relevant. Instead, difference between the a mount recorded as share capital (plus any additional consideration in the form of cash or other assets) and the amount of share capital of the transferee company is adjusted in reserves of the transferee company. Recorded as goodwill or capital reserve.
Amortisation of Goodwill
No goodwill will arise. Goodwill to be amortised over a period not exceeding 5 years unless a longer period is justified.

If a scheme of amalgamation sanctioned under a Statute prescribes a different treatment to the reserves of the transferor company after amalgamation as compared to the requirements of this Standard, the same should be followed with the following disclosures:

(a) A description of the accounting treatment given to the reserves and the reasons for following the treatment different from that prescribed in this Standard.

(b) Deviations in the accounting treatment given to the reserves as compared to the requirements of this Standard that would have been followed had no treatment been prescribed by the scheme.

(c) The financial effect, if any, arising due to such deviation.

The above requirement is not applicable to any scheme of amalgamation approved under the Companies Act, 2013.

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