The Definitions AS 14 Sets

In one line

AS 14 paragraph 3 defines nine terms, and the definitions of amalgamation, merger, purchase and consideration decide the whole of the rest of the standard.

The nine, in the standard's order

(a) Amalgamation. An amalgamation pursuant to the provisions of the Companies Act, 2013 or any other statute which may be applicable to companies and includes 'merger'.

Note that the definition is procedural: it points at a statute rather than describing a commercial event. The reference to "any other statute" brings in banking and insurance amalgamations made under their own Acts.

(b) Transferor company. The company which is amalgamated into another company.

(c) Transferee company. The company into which a transferor company is amalgamated.

(d) Reserve. The portion of earnings, receipts or other surplus of an enterprise, whether capital or revenue, appropriated by the management for a general or a specific purpose other than a provision for depreciation or diminution in the value of assets or for a known liability.

The tail of that definition is what separates a reserve from a provision, and it is asked as a distinguish-between. A reserve is an appropriation of profit; a provision is a charge against it, made for depreciation, for a diminution in value, or for a known liability.

(e) Amalgamation in the nature of merger. An amalgamation which satisfies all of the five conditions set out in the definition, worked in the next chapter.

(f) Amalgamation in the nature of purchase. An amalgamation which does not satisfy any one or more of the conditions specified in (e).

Read those two together. Merger is defined positively by five conditions; purchase is defined negatively as the failure of any one of them. There is no third category.

(g) Consideration for the amalgamation. The aggregate of the shares and other securities issued and the payment made in the form of cash or other assets by the transferee company to the shareholders of the transferor company.

The words to the shareholders are the whole difficulty of Module II and are worked separately.

(h) Fair value. The amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm's length transaction.

(i) Pooling of interests. A method of accounting for amalgamations the object of which is to account for the amalgamation as if the separate businesses of the amalgamating companies were intended to be continued by the transferee company. Accordingly, only minimal changes are made in aggregating the individual financial statements of the amalgamating companies.

That last definition explains the method before the method is met. If the businesses are to continue as they were, nothing should be restated, and the figures should simply be added together.