AS 14 covers accounting for amalgamations over goodwill and reserves, directed specifically to companies but also to other enterprises as well. This standard does not cover acquisitions from the purchase by one company or all or part of the shares or assets of another company.

Definition of Terms

Amalgamation— Any statute which includes the term ‘merger’ and is applicable to companies according to the Companies Act of 2013

Amalgamation in nature of merger— an amalgamation in which all assets and liabilities are then owned and a part of the transferee company and satisfies the conditions below:

  • Shareholders who have no less than 90% of the face value of the transferor company’s equity shares, after amalgamation, become the equity shareholders of the transferee company.
  • Any business owned by the transferor company should be continued post-amalgamation by the transferee company.
  • In AS 14, when the transferor company’s assets and liabilities book values are included in the transferee company’s financial statements, no adjustment is necessary of the book values unless to adhere to uniformity of accounting policies

Transferor company— A company amalgamated or merged into another company

Transferee company— A company into which a transferor company is merged

Reserve— a part of the wages, receipts, or surplus that goes to a specific purpose besides providing for the depreciation or diminution of an asset value

Fair value— the sum which an asset can be exchanged for between a buyer and seller

Amalgamation types

Amalgamations for this accounting standard come in four very broad categories, listed below.

  •  Amalgamations that pool the assets and liabilities of amalgamating companies with shareholders’ interests and company businesses.
  •  Amalgamations by which one company acquires another company, and the shareholders of the acquired company do not have an equitable share in the merged company. These amalgamations are known as ‘amalgamations in the nature of purchase’.

Accounting methods for amalgamations

‘Pooling of interests method’ and ‘the purchase method’ are two of the primary methods of amalgamations accounting used in AS 14.

The ‘purchase method’ takes care of amalgamations using the criteria that apply to the normal purchase of assets, including ‘amalgamations in the nature of purchase’.

The pooling of interests method in accounting standard 14 may only be used in situations that meet the requirements of ‘amalgamation in the nature of merger’. In this method, the transferee company records the transferor company’s assets, liabilities and reserves at their current carrying amounts. However, if both the transferor and transferee parties have separate accounting standards, they must agree on a unanimous set of accounting policies following the amalgamation. Any and all changes to accounting policies should be reported in accordance to accounting standard 5.

With the purchase method, the transferee company uses the assets and liabilities at existing carrying amounts or validates the transferor’s individual assets and liabilities based on their fair value at the date of amalgamation. Fair values must be determined by the transferee company, although they can be restated on the basis of fair values.

Reserve Treatment on Amalgamation

The ‘amalgamation in the nature of merger’ according to accounting standard 14 preserves the identity of the transferor company’s reserves in the statements in the transferee company. For example, the transferor company’s General Reserve stays the same as the transferee company’s General Reserve, the transferor company’s Capital Reserve becomes the transferee company’s Capital Reserve, and so on.


Goodwill Treatment

Goodwill growing on an amalgamation is a payment made in the expectancy of future income, which should be treated as an asset to be amortised. When forecasting the useful life of goodwill,for your AS 14,  factors such as whether the business has a foreseeable future, the changes in demand, the actions of potential competitors, the service of individuals and employees, and legal provisions on the life of the amalgamation.

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