As per AS 14 on ‘Accounting for Amalgamations’, there are two main methods of accounting for amalgamations:
(i) The Pooling of Interest Method
Under this method, the assets, liabilities and reserves of the transferor company are recorded by the transferee company at their existing carrying amounts. If at the time of amalgamation, the transferor and the transferee companies have conflicting accounting policies, a uniform set of accounting policies is adopted following the amalgamation. The effects on the financial statements of any changes in accounting policies are reported in accordance with AS 5 on ‘Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies’.
(ii) The Purchase Method
Under the purchase method, the transferee company accounts for the amalgamation either by incorporating the assets and liabilities at their existing carrying amounts or by allocating the consideration to individual identifiable assets and liabilities of the transferor company on the basis of their fair values at the date of amalgamation. The identifiable assets and liabilities may include assets and liabilities not recorded in the financial statements of the transferor company.
Where assets and liabilities are restated on the basis of their fair values, the determination of fair values may be influenced by the intentions of the transferee company.