AS 14 Accounting for explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
AS 14 deals with the books of the transferee company when another company is amalgamated into it. It first asks whether the amalgamation is a true pooling of two businesses, called a merger, or in substance a purchase, and then prescribes one of two methods. The choice decides whether reserves carry over, whether goodwill arises and how the profit and loss balance is treated. The standard is directed principally at companies (paragraph 1). Our financial and legal due diligence team looks at these questions when a merger is being planned.
Accounting Standards as on 1 April 2025 (ICAI compendium), read with the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026. Later amendments should be checked on icai.org and mca.gov.in. A footnote to the standard says micro, small and medium sized non-company entities generally have no such transactions, so the standard is not applicable to them unless one arises, in which case they apply it; see our guide to the classification of entities. The entries on both sides of a deal are worked in amalgamation accounting.
An amalgamation is in the nature of merger only if all five conditions in paragraph 29 are met; otherwise it is in the nature of purchase (paragraph 30). A merger is accounted for by pooling of interests: carrying amounts, reserves in their existing form, no goodwill (paragraphs 33-35). A purchase uses the purchase method: any excess of consideration over net assets is goodwill amortised over a period not exceeding five years unless a somewhat longer one is justified, and a shortfall is capital reserve (paragraphs 37-38).
Scope and key terms
Paragraph 2 excludes acquisitions where one company buys the shares or assets of another and the acquired company is not dissolved and continues to exist; consolidated statements deal with those (see AS 21). In paragraph 3, the transferor is the company amalgamated into another, the transferee is the company into which it is amalgamated, and the consideration is the shares and securities issued plus cash or other assets paid to the transferor's shareholders.
The five conditions of a merger (paragraph 29)
| Condition | In plain words |
|---|---|
| (i) | All assets and liabilities of the transferor become those of the transferee |
| (ii) | Shareholders holding not less than 90 per cent of the face value of the transferor's equity shares (excluding those already held by the transferee, its subsidiaries or nominees) become equity shareholders of the transferee |
| (iii) | The consideration for those shareholders is wholly in equity shares of the transferee, except cash for fractional shares |
| (iv) | The business of the transferor is intended to be carried on by the transferee |
| (v) | No adjustment is intended to the book values of the transferor's assets and liabilities, except to make accounting policies uniform |
Failing even one condition makes the amalgamation one in the nature of purchase (paragraph 30).
The requirements, head by head
- Methods (paragraphs 7-13). Pooling is confined to amalgamations that meet paragraph 3(e) (paragraph 8). The purchase method applies the principles of a normal purchase of assets, either at carrying amounts or by allocating the consideration to identifiable assets and liabilities at fair value (paragraph 12).
- Consideration (paragraphs 14-15). Non-cash elements are valued at fair value; the value fixed by statutory authorities may be taken for securities. An additional payment contingent on a future event is included if probable and reasonably estimable (paragraph 41); otherwise it is recognised when determinable (see AS 4).
- Reserves (paragraphs 16-18, 33, 36, 39). In a merger the identity of reserves is preserved, so the transferor's general reserve remains a general reserve, and reserves available for dividend before remain so. The difference between share capital issued (plus any cash) and the transferor's share capital is adjusted in reserves (paragraph 35). In a purchase the identity of reserves is not preserved, except statutory reserves, which are recorded by a corresponding debit to an account such as "Amalgamation Adjustment Reserve" shown as a separate line (paragraph 39).
- Goodwill (paragraphs 19-20, 37-38). Goodwill is an asset amortised on a systematic basis over its useful life, estimated prudently; the period should not exceed five years unless a somewhat longer one can be justified.
- Reserves specified in a scheme (paragraphs 23, 42). A scheme sanctioned under a statute may prescribe the treatment of reserves; if it differs from the standard, three disclosures are required. A footnote to the notified text says these two paragraphs do not apply to a scheme approved under the Companies Act, 2013. The Rules and our post on rules 1 to 5 explain the notification.
- After the balance sheet date (paragraphs 27, 46). An amalgamation effected after the balance sheet date but before the statements are issued is disclosed under AS 4 but not incorporated.
Worked example: Lakshmi Packaging Limited into Vasant Industries Limited
The entity and all figures in this example are invented for illustration.
Lakshmi Packaging (transferor) has equity share capital 3,00,000 (30,000 shares of 10), general reserve 1,20,000, capital reserve 30,000, profit and loss balance 50,000 and creditors 1,00,000. Its assets are fixed assets 3,50,000, inventories 1,20,000, debtors 80,000 and bank 50,000. Vasant Industries (transferee) offers 3 of its equity shares of 10 for every 4 shares held in Lakshmi. All shareholders accept; Vasant will carry on the business and makes no adjustment to book values.
Step 1: test the five conditions.
Condition (i) is met because everything of Lakshmi moves to Vasant; (ii) because all holders accept; (iii) because the offer is 3 shares for 4 with no cash apart from fractions; (iv) by the stated intention; (v) because carrying amounts are used. All five are met, so this is a merger and the pooling method applies.
Step 2: pooling entry in Vasant's books. Shares issued: 30,000 x 3 / 4 = 22,500 shares of 10 = 2,25,000. Difference from Lakshmi's share capital: 3,00,000 - 2,25,000 = 75,000, adjusted in reserves (paragraph 35).
| Particulars | Debit | Credit |
|---|---|---|
| Fixed assets Dr | 3,50,000 | |
| Inventories Dr | 1,20,000 | |
| Debtors Dr | 80,000 | |
| Bank Dr | 50,000 | |
| To Creditors | 1,00,000 | |
| To Equity share capital (22,500 x 10) | 2,25,000 | |
| To General reserve | 1,20,000 | |
| To Capital reserve | 30,000 | |
| To Profit and loss balance | 50,000 | |
| To Reserve on amalgamation (75,000) | 75,000 | |
| Total | 6,00,000 | 6,00,000 |
The reserves keep their form (paragraph 16) and the profit and loss balance is aggregated (paragraph 21).
Step 3: the same business bought as a purchase. Suppose instead the terms give the holders 22,500 shares valued at 24 each plus 20,000 in cash. Cash breaks condition (iii), so it is a purchase. Net assets at book values: 6,00,000 - 1,00,000 = 5,00,000.
| Working | Amount |
|---|---|
| Shares: 22,500 x 24 | 5,40,000 |
| Cash | 20,000 |
| Consideration | 5,60,000 |
| Less net assets taken over | (5,00,000) |
| Goodwill arising on amalgamation | 60,000 |
| Particulars | Debit | Credit |
|---|---|---|
| Business purchase account Dr | 5,60,000 | |
| To Equity share capital (22,500 x 10) | 2,25,000 | |
| To Securities premium (22,500 x 14) | 3,15,000 | |
| To Bank | 20,000 | |
| Fixed assets Dr | 3,50,000 | |
| Inventories Dr | 1,20,000 | |
| Debtors Dr | 80,000 | |
| Bank Dr | 50,000 | |
| Goodwill arising on amalgamation Dr | 60,000 | |
| To Creditors | 1,00,000 | |
| To Business purchase account | 5,60,000 |
Lakshmi's general reserve, capital reserve and profit and loss balance do not appear. Goodwill of 60,000 amortised over the five-year ceiling in paragraph 38 gives 12,000 a year, charged to the statement of profit and loss.
Check. Pooling: assets 6,00,000 = creditors 1,00,000 + share capital 2,25,000 + reserves 1,20,000 + 30,000 + 50,000 + 75,000 = 6,00,000. Purchase: assets 6,00,000 + goodwill 60,000 = 6,60,000 = creditors 1,00,000 + business purchase 5,60,000; the first entry totals 5,60,000 on each side. Goodwill over five years: 12,000 x 5 = 60,000.
Disclosures (paragraphs 43-45)
In the first statements after the amalgamation, disclose for all amalgamations the names and nature of business, the effective date for accounting purposes, the method and the particulars of the scheme; for pooling, the shares issued, the percentage of each company's equity shares exchanged and the difference with its treatment; for purchase, the consideration (including contingent amounts), the difference and its treatment and the goodwill amortisation period.
Common mistakes
- Using pooling because the scheme calls the deal a merger, without testing the five conditions.
- Carrying the transferor's reserves into a purchase.
- Incorporating an amalgamation that took effect after the balance sheet date.
Need help with a merger or amalgamation?
If you are planning a merger, the accounting treatment, the scheme and the valuation need to be consistent from the start. Our financial and legal due diligence team can review the accounts of both companies and the draft scheme. Send us the latest balance sheets and the proposed terms.
Key takeaways
- All five conditions in paragraph 29 must be met for a merger; one failure makes it a purchase.
- Merger: pooling, carrying amounts, reserves preserved, no goodwill.
- Purchase: excess is goodwill amortised over a period not exceeding five years unless longer is justified; shortfall is capital reserve.
- A scheme sanctioned under a statute may prescribe the treatment of reserves; check the footnote for Companies Act, 2013 schemes.
- Disclose the method, the scheme and the effect in the first statements after the amalgamation.
Read next
- Accounting Standards in India: the list from AS 1 to AS 29
- AS 20 Earnings Per Share: basic and diluted
- Section 232: merger and amalgamation
- Section 233: fast track merger
Disclaimer: Based on the Accounting Standards issued by the Institute of Chartered Accountants of India as on 1 April 2025, the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026, the Companies Act, 2013 and the ICAI guidance named in the article, as consulted on 4 October 2026. The worked example uses invented figures. Later amendments should be checked on icai.org and mca.gov.in. This article is general information, not legal advice; check the official text before acting.