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Thread: Accounting Standard (AS) 14 - Accounting forAmalgamations

  1. #1
    Accounting Standards
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    Thumbs up Accounting Standard (AS) 14 - Accounting forAmalgamations

    Accounting Standard (AS) 14

    Accounting forAmalgamations
    (This Accounting Standard includes paragraphs 28-46 set in
    bold italic

    type and paragraphs 1-27 set in plain type, which have equal authority.
    Paragraphs in bold italic type indicate the main principles. This
    Accounting Standard should be read in the context of the Preface to the
    Statements of Accounting Standards
    1.)

    The following is the text ofAccounting Standard (AS) 14,
    ‘Accounting

    for
    Amalgamations’, issued by the Council of the Institute of Chartered
    Accountants of India.
    This standard will come into effect in respect of accounting periods
    commencing on or after 1.4.1995 and will be mandatory in nature.
    2 The
    Guidance Note on Accounting Treatment of Reserves in Amalgamations
    issued by the Institute in 1983 will stand withdrawn from the aforesaid
    date.

    Introduction
    1. This statement deals with accounting for amalgamations and the
    treatment of any resultant goodwill or reserves. This statement is directed
    principally to companies although some of its requirements also apply to
    financial statements of other enterprises.
    Attached Files Attached Files

  2. #2
    Accounting Standards
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    Thumbs up General Clarification (GC) - 4/2002 Accounting Standard (AS) 14, Accounting for Amalgamations

    General Clarification (GC) - 4/2002

    Accounting Standard (AS) 14, Accounting for Amalgamations
    The following is the General Clarification (GC) - 4/2002, issued by the Accounting Standards Board of the Institute of Chartered Accountants of India, on AS 14, Accounting for Amalgamations:
    Paragraph 42 of AS 14 provides as under:

    "Treatment of Reserves Specified in A Scheme of Amalgamation

    42. Where the scheme of amalgamation sanctioned under a statute prescribes the treatment to be given to the reserves of the transferor company after amalgamation, the same should be followed."

    In some cases, the scheme of amalgamation sanctioned under a statute prescribes a different treatment to be given to the reserves of the transferor company after amalgamation as compared to the requirements of AS 14 that would have been followed had no treatment been prescribed by the scheme. In such cases, in the interest of better understanding, it is recommended that the following disclosures be made in the first financial statements following the amalgamation:
    1. A description of the accounting treatment given to the reserves and the reasons for following a treatment different from that prescribed in AS 14.

    2. Deviations in the accounting treatment given to the reserves as prescribed by the scheme of amalgamation sanctioned under the statute as compared to the requirements of AS 14 that would have been followed had no treatment been prescribed by the scheme.

  3. #3
    Accounting Standards
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    Thumbs up Limited Revisions to AS 14

    Limited Revisions to AS 14
    The Council of the Institute of Chartered Accountants of India has decided to make the following limited revisions to Accounting Standard (AS) 14, Accounting for Amalgamations.
    It has been decided to substitute paragraph 42 of AS 14 by the following paragraph (modifications made are shown as underlined):
    "42. Where the scheme of amalgamation sanctioned under a statute prescribes the treatment to be given to the reserves of the transferor company after amalgamation, the same should be followed. Where the scheme of amalgamation sanctioned under a statute prescribes a different treatment to be given to the reserves of the transferor company after amalgamation as compared to the requirements of this Statement that would have been followed had no treatment been prescribed by the scheme, the following disclosures should be made in the first financial statements following the amalgamation:
    (a) A description of the accounting treatment given to the reserves and the reasons for following the treatment different from that prescribed in this Statement.
    (b) Deviations in the accounting treatment given to the reserves as prescribed by the scheme of amalgamation sanctioned under the statute as compared to the requirements of this Statement that would have been followed had no treatment been prescribed by the scheme.
    (c) The financial effect, if any, arising due to such deviation."
    As a consequence of the change in the above paragraph, paragraph 23 of AS 14, which is the explanatory paragraph to paragraph 42, has been decided to be substituted by the following paragraph (modifications made are shown as underlined):
    "23. The scheme of amalgamation sanctioned under the provisions of the Companies Act, 1956 or any other statute may prescribe the treatment to be given to the reserves of the transferor company after its amalgamation. Where the treatment is so prescribed, the same is followed. In some cases, the scheme of amalgamation sanctioned under a statute may prescribe a different treatment to be given to the reserves of the transferor company after amalgamation as compared to the requirements of this Statement that would have been followed had no treatment been prescribed by the scheme. In such cases, the following disclosures are made in the first financial statements following the amalgamation:
    (a) A description of the accounting treatment given to the reserves and the reasons for following the treatment different from that prescribed in this Statement.
    (b) Deviations in the accounting treatment given to the reserves as prescribed by the scheme of amalgamation sanctioned under the statute as compared to the requirements of this Statement 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 limited revisions come into effect in respect of accounting periods commencing on or after 1-4-2004. General Clarification (GC) - 4/2002, on AS 14, issued by the Accounting Standards Board, in June 2002, stands withdrawn from that date.

  4. #4
    Accounting Standards
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    Thumbs up Transfer of Reconstruction Reserve to General Reserve.

    Query: Transfer of Reconstruction Reserve to General Reserve.

    1. A company owned three separate industrial undertakings in three different locations and under a scheme of amalgamation/reconstruction as approved by the High Court of Judicature at Madras, the assets and liabilities of the holding company (transferor company) were transferred to and vested with its three subsidiary companies (transferee companies). While so vesting, there was an excess of assets over liabilities and such excess of assets over liabilities was represented by a reserve called “Reconstruction Reserve” in the balance sheet of the querist’s company which was one of the transferee companies. To represent this a similar reserve called “Reconstruction Reserve” under “Miscellaneous Expenditure” was created in the other two transferee companies. Thus, the reconstruction reserve is not a reserve created out of revaluation of assets. Now the querist’s company proposes to transfer the balance amount standing in the “Reconstruction Reserve” in its books of account to the general reserve account.

    2. The querist has stated that as per the scheme of amalgamation/reconstruction, the three transferee companies issued shares to the share-holders of the transferor company as consideration for transfer of assets and liabilities. The querist company had issued 10,316 shares as fully paid up to the shareholders of the transferor company in consideration of the assets and liabilities of the transferor company. After such transfer of assets and liabilities, the transferor company was dissolved without winding up.

    3. The querist has supplied the balance sheets of the three units of the transferor companies which have taken over the entire assets and liabilities of the transferor company on the date of amalgamation/reconstruction, viz., 31.12.1982, together with copies of the order of the High Court of Judicature at Madras, for the Committee’s consideration.

    4. The querist’s company had sought a legal opinion in this regard wherein it was advised to transfer the amount from the reconstruction reserve account to the general reserve account, a copy of which has been submitted for the Committee’s consideration.

    5. The querist has sought the opinion of the Expert Advisory Committee as to whether it can transfer the ‘Reconstruction Reserve’ to General Reserve.



    Opinion July 14, 1995

    1. The Committee has considered the treatment of ‘Reconstruction Reserve’ of the querist’s company only. It has not considered the treatment of ‘Reconstruction Reserve’ of the other two transferee companies. The Committee presumes that the amount of the Reconstruction Reserve has been arrived at after considering the value of shares transferred to the shareholders of the transferor company.

    2. The Committee notes para 37 of Accounting Standard (AS) 14, on ‘Accounting for Amalgamations’, issued by the Institute of Chartered Accountants of India, which is reproduced as follows:

    “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.”

    3. On the basis of the above, the Committee is of the view that, in view of the presumption made at para 1 above, since the equity shares issued to the shareholders of the transferor company is the consideration in the scheme of Amalgamation/Reconstruction, the Reconstruction Reserve is the excess of net assets (i.e., assets minus liabilities) over the consideration paid. This ‘Reconstruction Reserve’ is in the nature of a capital reserve. The Committee notes that Part I of Schedule VI to the Companies Act, 1956, requires disclosure of Capital Reserve separately.

    4. Based on the above, the Committee is of the opinion that ‘Reconstruction Reserve’, being in the nature of capital reserve, cannot be transferred to General Reserve.

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