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Utilisation of reserves in case of amalgamation in the nature of merger in case we have different re

Tonoy Chakraborty (CA Student ) (22 Points)

06 July 2018

On a very serious note, please explain me the utilisation of reserves in case of amalgamation in the nature of merger in case we have many different kinds of reserves e.g statutory reserves,free reserves,specific reserves and capital reserves.How should i begin the process of adjusting the reserves if the amount to be adjusted is heavy?

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CA Sunil Kumar (Chartered Accountant) (4524 Points)
Replied 06 July 2018

If the amalgamation is an ‘amalgamation in the nature of merger’, the identity of the reserves is preserved and they appear in the financial statements of the transferee company in the same form in which they appeared in the financial statements of the transferor company. Thus, for example, the General Reserve of the transferor company becomes the General Reserve of the transferee company, the Capital Reserve of the transferor company becomes the Capital Reserve of the transferee company and the Revaluation Reserve of the transferor company becomes the Revaluation Reserve of the transferee company. As a result of preserving the identity, reserves which are available for distribution as dividend before the amalgamation would also be available for distribution as dividend after the amalgamation. The difference between the amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) and the amount of share capital of the transferor company is adjusted in reserves in the financial statements of the transferee company.