A Ltd. is to be amalgamated with B Ltd. Currently there is no common shareholder between A Ltd. and B Ltd. The proposed scheme envisages shareholders holding 85% of the face value of equity shares of A Ltd will become eq

Under AS-14, an amalgamation would be considered to be an amalgamation in the nature of merger when the following conditions are satisfied: All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company. Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation. In the given case, only 85% of shareholders of the face value of equity shares of A Ltd. will become equity shareholders of B Ltd. Hence, the amalgamation would fall under the category of amalgamation in the nature of purchase. In the case of purchase method, while preparing the transferee company's financial statements, the identity of the reserves, other than the statutory reserves is not preserved. Hence, only Investment Allowance Reserves (being in the nature of statutory reserve) would retain its identity in the financial statements of B Ltd, in the same form in which they appeared in the financial statements of A Ltd, so long as the identity is required to be statutorily maintained. As regards Capital Reserves and Revaluation Reserves are concerned, their identity will not be preserved.