in amalgamation in the nature of merger, the reserves of the transferor/vendor/selling company also get transferred to the transferee/purchasing company along with the assets and liabilities.
My doubt is that this method of accounting is applicable only to the transferee company and does not affect the entries of the transferor company..
Do the reserves get credited to
(a) equity shareholders(like normally) or
(b) realisation account along with other liabilities taken over
but in merger method, even the reserves are transferred...
why would we credit the reserves to the shareholders then..? because the reserves now belong to the transferee company..?
Reserves are the surplus left after deduction of external liabilities from assets (in excess of share capital). Only assets and external liabilities can be transferred to realisation account.
When the transferor company is transferred, generally all the assets are given away for a lumpsum consideration which either generates a further surplus or a deficit for shareholders. This is added to the reserves and finally the reserves are distributed to shareholders along with the share capital.
The accounting treatment at transferor's end will have totally no effexct on accounting at the transferor's end.
P.S: nice pic :)
CAclubindia
