When two companies merge into one, who records what — and how? That's exactly what AS 14 (Accounting for Amalgamations) answers. Whether it's Reliance absorbing a smaller subsidiary or two family businesses combining into a single Pvt. Ltd., AS 14 sets the rules for how the books are written up after the deal.
AS 14 recognises two fundamentally different types of amalgamations, and the type determines everything — the method, the treatment of reserves, even whether goodwill appears. Amalgamation in the Nature of Merger (think: true union of equals) uses the Pooling of Interests Method. All five conditions below must be satisfied simultaneously: (1) all assets and liabilities of the transferor company become assets and liabilities of the transferee; (2) shareholders holding at least 90% of the face value of equity shares of the transferor become equity shareholders of the transferee; (3) the consideration is paid only in equity shares (cash only for fractional shares); (4) the business of the transferor is intended to be continued; and (5) no adjustment is made to book values of assets/liabilities except for uniformity of accounting policies. If even one condition fails → it's an Amalgamation in the Nature of Purchase, and the Purchase Method applies.
Under the Pooling of Interests Method, assets and liabilities are recorded at their existing book values. Reserves of the transferor (including statutory reserves) are also carried forward as-is — a key advantage. Any difference between the purchase consideration and the share capital of the transferor goes to a Merger Reserve (or adjusts existing reserves). Under the Purchase Method, assets and liabilities are recorded at agreed/fair values. If Purchase Consideration > Net Assets acquired → the excess is Goodwill (amortised over useful life, max 5 years per ICAI guidance). If Purchase Consideration < Net Assets → the shortfall is Capital Reserve. Statutory reserves (like Development Rebate Reserve) that must be maintained legally are recorded in the books under the Purchase Method using the Amalgamation Adjustment Account on the asset side as a fictitious asset until the obligation lapses.
This is one of the highest-weightage topics in Advanced Accounting — expect an 8–10 mark problem in the May 2026 exam. Focus on: computing purchase consideration, identifying the correct method, and the journal entries for goodwill/capital reserve.