Page 68 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 4: Amalgamation: Accounting Treatment

(8) For writing off the goodwill against Capital reserves- notes
Capital Reserve A/c Dr.

To Goodwill A/c
(Being goodwill written off against capital reserves)

self assessment

State whether the following statements are true or false:
6. Under the Net Payment Method, the purchase consideration is computed by adding all the
payments made by the transferee company to several interests in the transferor company.
7. Under the Net Assets Method, the purchase consideration by taking all assets including
fictitious assets.
8. Under the Net Assets Method, the net assets are calculated by adding the agreed value of
assets taken over minus agreed value of liabilities.
9. Workmen’s Accident Compensation Fund is an outside liability and must be closed by
transferring to realisation account.
10. Only in the case of amalgamation in the nature of merger, Goodwill or Capital Reserve
arises.

Differences between pooling of interests method and purchase method

The differences between Pooling of Interest Method and Purchase Method may be based on the
points given in Table 4.1.
table 4.1: Differences between pooling of interests and purchase methods

Basis of Difference pooling of interest method purchase method
(1) Nature of It is adapted in the case of amalgamation It is adapted in the case of
Amalgamation in the nature of merger. amalgamation in the nature of
purchase.
(2) Incorporation of Profit Under this method, profits and reserves Under this method, profits and
and Reserves are incorporated with the financial reserves are not incorporated
statements of Transferee Company. with the financial statements of
transferee company.
(3) Requirement of Under this method, there is no Here, this account is required at
Amalgamation requirement of this account. the time of opening of statutory
Adjustment A/c reserves.

Illustration 4 (Lump Sum Method for Consideration in Absorption)
The following was the Balance Sheet of Radhe Company Limited on 31 December, 2010:
st
Balance sheet
liabilities ` assets `
20,000 Equity Goodwill 1,00,000
Shares of ` 100 each Land & Buildings 6,00,000
Fully paid 20,00,000 Plant & Machinery 13,40,000
Reserves 7,40,000 Stock 9,00,000

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