Page 48 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 3: Accounting Standards (AS) – 14

35. The difference between the amount recorded as share capital issued (plus any additional notes
consideration in the form of cash or other assets) and the amount of share capital of the
transferor company should be adjusted in reserves.

Did u know? No adjustment is intended to be made to the book values of the assets and
liability of the transferor company when they are incorporated in the financial statements
of the transferee company, except to ensure uniformity of accounting policies.
the purchase method

36. In preparing the transferee company’s financial statements, the assets and liabilities of
the transferor company should be incorporated at their existing carrying amounts or,
alternatively, the consideration should be allocated to the date of amalgamation. The
reserves (whether capital or revenue or arising on revaluation) of the transferor company,
other than the statutory reserves, should not be included in the financial statements of the
transferee company, except as stated in paragraph 39.
37. Any excess of the amount of the consideration over the value of the net assets of the
transferor company acquired by the transferee company should be recognised in the
transferee company’s financial statements as goodwill arising on amalgamation. If the
amount of the consideration is lower than the value of the net assets acquired, the difference
should be treated as Capital Reserve.
38. The goodwill arising on amalgamation should be amortised to income on a systemic basis
over its useful life. The amortisation period should not exceed five years, unless a somewhat
longer period can be justified.
39. Where the requirements of the relevant statute for recording the statutory reserves in the
books of the transferee company are complied with, statutory reserves of the transferor
company should be recorded in the financial statements of the transferee company. The
corresponding debit should be given to a suitable account head (e.g., ‘Amalgamation
Adjustment Account’), which should be disclosed as a part of ‘miscellaneous expenditure’
or other similar category in the balance sheet.
(a) When the identity of the relevant statutory reserves is no longer required to be
maintained, both the reserves and the aforesaid account should be reversed.

common procedures

40. The consideration for the amalgamation should include any non-cash element at fair value.
In case of issue securities, the value fixed by the statutory authorities may be taken to be
the fair value. In case of other assets, the fair-value may be determined by reference to the
market value of the assets given up. Where the market value of the assets given up cannot
be reliably assessed, such assets may be valued at their respective net book values.
41. Where the scheme of amalgamation provides for an adjustment to the consideration
contingent on one or more future events, the amount of the additional payment should be
included in the consideration, if payments are probable and a reasonable estimate of the
amount can be made. In all other cases, the adjustment should be recognised as soon as
the amount is determinable [See Accounting Standard (AS)-4, Contingencies and Events
Occurring after the Balance Sheet Date].

lovely professional university 43