Moudle-4

Exchange Ratio (Swap Ratio)

1. What is an exchange (swap) ratio?

Exchange ratio = number of shares of the acquiring company to be given for each share of
the target company in a share-swap merger.
General formula (used for all methods):
Exchange ratio=Value per share of Target/Value per share of Acquirer
If the ratio = 0.5, it means 1 share of Target = 0.5 share of Acquirer (or 2 Target shares = 1
Acquirer share).

2. Common methods to determine the exchange ratio

1. Book Value (Net Asset) Method — based on book value per share.
2. Market Value Method — based on current market price per share.
3. P/E (Earnings) / Fair Value Method — use EPS × common P/E to get fair values, then
ratio.
4. EPS-neutrality or Earnings Basis — choose ratio so post-merger EPS (usually of acquirer)
remains unchanged.
5. Dividend/Yield Method — use dividend yield parity to determine values.
6. Weighted / Compromise Method — combine two or more methods with weights (e.g., 60%
market + 40% book).
7. Negotiated / Synergy Adjusted — parties adjust values to account for expected synergies,
control premium, etc.

3. Worked problems
Problem 1 — Book Value Method
Question:
Company A (Acquirer) — Net assets ₹600,000; Shares outstanding = 50,000.
Company B (Target) — Net assets ₹120,000; Shares outstanding = 20,000.
Find the exchange ratio by book value method.
Solution — working notes:
1. Compute book value per share (BVPS) of A:
BVPSA=₹600,000/50,000
Long division: 600000 ÷ 50000 = 12. (Because 50,000 × 12 = 600,000.)
So, BVPSA=₹12.
2. Compute BVPS of B:
BVPSB=₹120,000/20,000
120000 ÷ 20000 = 6. (Because 20,000 × 6 = 120,000.)
So, BVPS B=₹6.
3. Exchange ratio = BVPS_B / BVPS_A = 6 ÷ 12 = 0.5.
(Step: 6/12 = 1/2 = 0.5.)
Interpretation: 1 share of B = 0.5 share of A → 2 shares of B = 1 share of A.

Problem 2 — Market Value Method

Question: Acquirer A market price = ₹80 per share. Target B market price = ₹50 per share.
Find exchange ratio.
Solution
Exchange ratio = Market Price_B / Market Price_A = 50 ÷ 80.
1. Reduce fraction: divide numerator & denominator by 10 → 5/8.
5 ÷ 8 = 0.625. (Do division: 8 goes into 5 → 0.625 because 5/8 = 0.625.)
 Interpretation: 1 share of B = 0.625 share of A. To avoid fractions in practice, express as 8
shares of B = 5 shares of A (multiply both sides by 8).

Problem 3 — P/E (Fair Value) Method

Question: Acquirer A: EPS = ₹8, P/E = 10.
Target B: EPS = ₹5. (We will value B using A’s P/E = 10.) Find exchange ratio.
Solution
1. Fair value per share of A = EPS_A × P/E_A
= ₹8 × 10 = ₹80.
(Multiply: 8 × 10 = 80.)
2. Fair value per share of B (using A’s P/E) = EPS_B × P/E_A
= ₹5 × 10 = ₹50.
(5 × 10 = 50.)
3. Exchange ratio = Fair Value_B / FairV alue_A = 50 ÷ 80 = 5/8 = 0.625.
Interpretation: Same as Problem 2: 8 B shares = 5 A shares.

Problem 4 — EPS-Neutrality (Earnings Basis)

Question: Acquirer A: Profit ₹100,000; Shares outstanding = 50,000.
Target B: Profit ₹20,000; Shares outstanding = 20,000.
Find the exchange ratio rr (number of A shares issued for each B share) so that post-merger
EPS of the combined firm = EPS of A before merger (EPS neutrality).
Solution — working notes
1. EPS of A before merger:
EPSA=₹100,000/50,000=₹2.00
(100000 ÷ 50000 = 2.)
2. Combined profit after takeover = 100,000 + 20,000 = ₹120,000.
3. If A issues rr shares for each B share,
new shares issued = r×20,000r \times
20,000.
Total shares after merger = 50,000+20,000
4. EPS neutrality condition:
120,000/50,000+20,000r=2

Left side equation ⇒ 120000 ÷ (50000 + 20000r) = 2.

5. Solve step by step:

Multiply both sides by denominator: 120000 = 2 × (50000 + 20000r).

Right side: 2 × 50000 = 100000; 2 × 20000r = 40000r. So:
120000=100000+40000

Subtract 100000 from both sides: 120000 − 100000 = 40000r ⇒ 20,000 = 40,000r.
r120000 = 100000 + 40000r

So r=20000÷40000=0.5r

Interpretation: r=0.5 r = 0.5 ⇒ 1 share of B = 0.5 share of A (or 2 B shares = 1 A

= 20000 ÷ 40000 = 0.5.

share). With this ratio the combined EPS remains ₹2.00.

Problem 5 — Weighted / Compromise Method

Question: Acquirer A: Market price = ₹100, Book value per share = ₹70.
Target B: Market price = ₹40, Book value per share = ₹30.
Management agrees: value = 60% Market + 40% Book. Find exchange ratio.
Solution — working notes:
1. Weighted value per share for A:
 = 0.60×100+0.40×70 =60+28 =88 0.60\times 100 + 0.40\times 70 = 60 + 28 = 88
(0.6×100=60; 0.4×70=28; sum=88.)
2. Weighted value per share for B:
0.60×40+0.40×30=24+12=360.60\times40 + 0.40\times30 = 24 + 12 = 36
(0.6×40=24; 0.4×30=12; sum=36.)
3. Exchange ratio = 36 ÷ 88. Reduce fraction: divide numerator & denominator by 4: 36/88 =
9/22.
Decimal: 9 ÷ 22 = 0.4090909… ≈ 0.4091.
Interpretation: 1 B = 0.4091 A. To avoid fractional shares, express as 22 B shares = 9 A
shares (multiply both sides by 22).

4. Practical notes and teacher’s tips

 Which method to use? No single method is universally “correct.” Book value is
conservative; market value reflects current investor expectations; P/E and EPS methods
reflect earning power; weighted/negotiated methods are common in real deals. Use more than
one method and reconcile differences with negotiation/synergy adjustments.
 Rounding: Exchange ratios often produce fractions. In practice companies adjust to
convenient ratios (e.g., 5 A for 8 B) or pay small cash to cover fractional shares.
 Synergies and control premium: If the buyer expects synergies, the buyer may offer a
higher ratio (i.e., issue more shares) or use cash to sweeten the offer.
 EPS accretion/dilution analysis: After proposing a swap ratio, always compute post-merger
EPS and show whether EPS is accretive or dilutive to the acquirer’s shareholders.
 Documentation: Show working notes clearly (as above) — auditors and regulators expect
transparent computations.

5. Short practice problems (you can give to students)

1. A: Net assets ₹900,000; shares 60,000. B: Net assets ₹240,000; shares 30,000. Find swap
ratio by book value.
2. A: Market price ₹120; B: Market price ₹45. Find swap ratio and show simple integer
equivalent.
3. A: Profit ₹180,000; shares 90,000. B: Profit ₹30,000; shares 20,000. Find rr so that
combined EPS = EPS_A (EPS neutrality).

BVPS_A = 900000/60000 = 15; BVPS_B = 240000/30000 = 8; ratio = 8/15 = 0.5333 ⇒ 15 B

Answers (brief):
1.

Ratio = 45/120 = 3/8 = 0.375 ⇒ 8 B = 3 A.

= 8 A.
2.
3. EPS_A = 180000/90000 = 2.00. Combined profit = 210000. Need 210000/(90000 + 20000r)
= 2 → 210000/2 = 105000 = 90000 + 20000r → r = (105000 − 90000)/20000 = 15000/20000
= 0.75. So 1 B = 0.75 A (or 4 B = 3 A).

📘 Journal Entries in Amalgamation

1. In the Books of Transferor Company (Vendor Company)
When all assets and liabilities are transferred to the Transferee Company:
(a) For transfer of assets:
Realisation A/c Dr
To Sundry Assets A/c
(Being assets transferred to Realisation A/c)
(b) For transfer of liabilities:
Sundry Liabilities A/c Dr
To Realisation A/c
(Being liabilities transferred to Realisation A/c)
(c) For consideration receivable from Transferee Company:
Transferee Company A/c Dr
To Realisation A/c
(Being purchase consideration receivable)
(d) On receipt of purchase consideration (in shares/cash):
Shares in Transferee Co. A/c Dr
Bank A/c Dr
To Transferee Company A/c
(Being consideration received)
(e) For distribution of consideration to shareholders:
Shareholders A/c Dr
To Shares in Transferee Co. A/c
To Bank A/c
(Being distribution of consideration to shareholders)

2. In the Books of Transferee Company (Purchasing Company)

(A) Under Pooling of Interest Method
(a) For recording business purchase:
Business Purchase A/c Dr
To Liquidator of Transferor Co. A/c
(Being purchase consideration payable)
(b) For taking over assets & liabilities:
Sundry Assets A/c Dr
To Sundry Liabilities A/c
To Business Purchase A/c
(Being assets & liabilities of transferor company taken over)
(c) For settlement of consideration (issue of shares, etc.):
Liquidator of Transferor Co. A/c Dr
To Share Capital A/c
To Securities Premium A/c (if any)
To Bank A/c (if part consideration in cash)
(Being purchase consideration discharged)

(B) Under Purchase Method

(a) For business purchase:
Business Purchase A/c Dr
To Liquidator of Transferor Co. A/c
(b) For taking over assets & liabilities at agreed value:
Sundry Assets A/c Dr
Goodwill A/c (Balancing fig., if any) Dr
To Sundry Liabilities A/c
To Business Purchase A/c
To Capital Reserve A/c (if any)
(c) For discharge of consideration:
Liquidator of Transferor Co. A/c Dr
To Share Capital A/c
To Securities Premium A/c
To Bank A/c
 Problem (given)
Transferor Co. (P Ltd.) — book figures (₹)
 Fixed assets (book) = 300,000
 Investments = 50,000
 Stock = 60,000
 Debtors = 40,000 (Provision for doubtful debts ₹4,000 already provided)
 Cash/Bank = 10,000
 Creditors = 30,000
 Bills payable = 5,000
 Share capital (40,000 shares of ₹10) = 400,000
 General reserve = 25,000
Check: Total assets = 300,000 + 50,000 + 60,000 + 40,000 + 10,000 = 460,000.
Total liabilities (creditors + bills) = 30,000 + 5,000 = 35,000.
Net assets = 460,000 − 35,000 = 425,000.
Equity (capital + reserves) = 400,000 + 25,000 = 425,000 → balanced.
Transferee Co. (Q Ltd.) agrees to purchase the entire business of P Ltd. for ₹500,000
(purchase consideration). Consideration to be discharged by issuing 50,000 shares of ₹10
each fully paid to the Liquidator of P Ltd. (i.e., issue value = 50,000 × ₹10 = ₹500,000).
There is no cash component.
Required: Prepare journal entries in the books of Transferor (P Ltd.) and Transferee (Q
Ltd.), show working notes, ledger effects, and present the Balance Sheet of Q Ltd. after
amalgamation. (Purchase method)

A. In the books of Transferor Company (P Ltd.)

1. Transfer of assets to Realisation A/c
We transfer all assets (at book values) to Realisation A/c.
Journal entries:
Realisation A/c Dr 300,000
To Fixed Assets A/c 300,000
(Being fixed assets transferred to Realisation A/c)

Realisation A/c Dr 50,000

To Investments A/c 50,000
(Being investments transferred to Realisation A/c)

Realisation A/c Dr 60,000

To Stock A/c 60,000
(Being stock transferred to Realisation A/c)

Realisation A/c Dr 40,000

To Debtors A/c 40,000
(Being debtors transferred to Realisation A/c)

Realisation A/c Dr 10,000

To Cash/Bank A/c 10,000
(Being cash transferred to Realisation A/c)
Working note — assets total moved to Realisation A/c:
300,000 + 50,000 + 60,000 + 40,000 + 10,000 = 460,000.
2. Transfer of liabilities to Realisation A/c
Creditors A/c Dr 30,000
 Bills Payable A/c Dr 5,000
To Realisation A/c 35,000
(Being creditors and bills taken over by Realisation A/c)
Working note — liabilities total: 30,000 + 5,000 = 35,000.
3. Record the purchase consideration receivable from Transferee (as a debtor)
Transferee (Q Ltd.) A/c Dr 500,000
To Realisation A/c 500,000
(Being purchase consideration receivable from Q Ltd.)
Explanation: Under Purchase method, Realisation A/c receives the purchase consideration
(treated as amount due from Transferee until received).
4. Close Realisation A/c (calculate gain / loss on realisation)
Now compute Realisation A/c balance.
Realisation A/c — debit side (assets transferred in) = ₹460,000.
Realisation A/c — credit side (liabilities taken over + consideration receivable) = ₹35,000
+ ₹500,000 = ₹535,000.
Net credit balance = 535,000 − 460,000 = ₹75,000 (gain on realisation). Under Purchase
method, this gain is recognized as Profit on Realisation and credited to Capital Reserve (or
Realisation Profit A/c distributed to Capital Reserve) — but the normal treatment under
Purchase method: difference appears as Goodwill in transferee (we will show corresponding
treatment in transferee). In transferor's books, Realisation profit is transferred to Capital
Reserve and then distributed to shareholders after settling Realisation accounts and
liquidator.
Journal entry to close Realisation:
Realisation A/c Dr 75,000
To Capital Reserve A/c 75,000
(Being profit on realisation transferred to Capital Reserve)
Check arithmetic: 460,000 (Dr) + 75,000 (Dr closing) = 535,000 (Cr). Balanced.
5. Transfer of balances of share capital and reserves to Liquidator (or to Sundry
Accounts to be settled)
The usual sequence is to transfer shareholders' accounts to Liquidator for settlement
(Liquidator will receive consideration from Transferee and distribute to shareholders). We
will show net amount due to shareholders.
Opening equity: Share Capital ₹400,000, General Reserve ₹25,000. After transferring
Realisation profit to Capital Reserve (₹75,000), total distributable equity becomes:
 Share Capital = 400,000
 Reserves (General + Capital Reserve) = 25,000 + 75,000 = 100,000
Total = 500,000.
So Liquidator will be paid ₹500,000 (the purchase consideration) and will discharge
shareholders.
Journal to transfer to Liquidator:
Shareholders A/c / Capital A/c Dr 500,000
To Share Capital A/c 400,000
To General Reserve A/c 25,000
To Capital Reserve A/c 75,000
(Being capital and reserves transferred to Shareholders' A/c for distribution by Liquidator)
But in standard presentation it's:
Share Capital A/c Dr 400,000
General Reserve A/c Dr 25,000
Capital Reserve A/c Dr 75,000
To Liquidator of P Ltd. A/c 500,000
(Being balances transferred to Liquidator for settlement)
(Equivalent notation — we make Liquidator the creditor for ₹500,000.)
6. On receipt of consideration (i.e., Q Ltd. issues shares to Liquidator)
Transferee issued 50,000 shares of ₹10 each to Liquidator; in transferor's books this is
receipt of shares.
Shares in Q Ltd. A/c Dr 500,000
To Liquidator of P Ltd. A/c 500,000
(Being shares of Q Ltd. received against purchase consideration)
7. Distribution of shares among transferor’s shareholders
Liquidator distributes the shares received to the shareholders of P Ltd. in accordance with
their holdings (for brevity we record distribution as settlement of Liquidator A/c):
Liquidator of P Ltd. A/c Dr 500,000
To Shareholders A/c 500,000
(Being consideration distributed among shareholders)
Finally, Shareholders A/c is closed by transferring to individual Shareholders accounts (not
needed here). The net effect: P Ltd. is liquidated; its assets and liabilities taken over and
shareholders receive shares of Q Ltd.

B. In the books of Transferee Company (Q Ltd.)

Under Purchase Method we record Business Purchase A/c for the purchase consideration
and bring the assets & liabilities at agreed/book values and recognize Goodwill if purchase
consideration > net assets.
1. Business purchase A/c (to record purchase consideration payable to transferor)
Business Purchase A/c Dr 500,000
To Liquidator of P Ltd. A/c 500,000
(Being purchase consideration payable to Liquidator for acquisition of P Ltd.)
2. Record assets taken over (at book values) and liabilities taken over
Bring assets into books of Q Ltd.:
Fixed Assets A/c Dr 300,000
Investments A/c Dr 50,000
Stock A/c Dr 60,000
Debtors A/c Dr 40,000
Bank A/c Dr 10,000
To Creditors A/c 30,000
To Bills Payable A/c 5,000
To Business Purchase A/c 375,000
(Being assets and liabilities of P Ltd. taken over)
Working breakdown:
Total assets recorded = 300,000 + 50,000 + 60,000 + 40,000 + 10,000 = 460,000.
Total liabilities = 30,000 + 5,000 = 35,000.
Net assets taken over = 460,000 − 35,000 = 425,000.
We have credited Business Purchase A/c with net assets taken (i.e., 425,000) and credited
liabilities separately; however, the concise single entry above shows assets debited and
liabilities + Business Purchase credited. The Business Purchase credited should equal net
assets taken = 425,000. In the entry I wrote Business Purchase credited 375,000 — that was a
mistake in narration; correct approach below.
Corrected journal (split for clarity):
Bring assets in:
Fixed Assets A/c Dr 300,000
Investments A/c Dr 50,000
 Stock A/c Dr 60,000
Debtors A/c Dr 40,000
Bank A/c Dr 10,000
To Business Purchase A/c 460,000
(Being assets of P Ltd. taken over at book values)
Take over liabilities:
Business Purchase A/c Dr 35,000
To Creditors A/c 30,000
To Bills Payable A/c 5,000
(Being liabilities of P Ltd. taken over)
Now net effect on Business Purchase A/c: Dr 35,000 (liabilities) and Credit 460,000 (assets)
→ Net credit = 460,000 − 35,000 = 425,000 (net assets taken). That means Business Purchase
A/c has a credit balance of ₹425,000 (net assets acquired). But Business Purchase A/c was
originally credited with ₹500,000 when recording consideration payable (we credited
Liquidator). Wait — earlier we debited Business Purchase A/c for the full purchase
consideration; let’s re-check entries to keep consistency.
We must follow the standard pattern:
 When we record business purchase (consideration payable): Debit Business Purchase A/c
and credit Liquidator A/c. (Business Purchase is debited with purchase consideration.)
 When we bring assets & liabilities: Debit assets, credit liabilities, and credit Business
Purchase A/c with net assets taken (so Business Purchase A/c will be credited with net asset
total and will finally show difference between purchase consideration and net assets i.e.,
Goodwill).
Let's present the correct sequence cleanly:
(i) Record purchase consideration payable:
Business Purchase A/c Dr 500,000
To Liquidator of P Ltd. A/c 500,000
(Being purchase consideration payable)
(ii) Record assets taken over at book values:
Fixed Assets A/c Dr 300,000
Investments A/c Dr 50,000
Stock A/c Dr 60,000
Debtors A/c Dr 40,000
Bank A/c Dr 10,000
To Business Purchase A/c 460,000
(Being assets of P Ltd. taken over at book values)
(iii) Record liabilities taken over:
Business Purchase A/c Dr 35,000
To Creditors A/c 30,000
To Bills Payable A/c 5,000
(Being liabilities of P Ltd. taken over)
Now calculate Business Purchase A/c balance:
 Dr side of Business Purchase A/c: 500,000 (from (i)) + 35,000 (from (iii)) = 535,000 Dr.
 Cr side of Business Purchase A/c: 460,000 (from (ii)) Cr.
Net Dr balance = 535,000 − 460,000 = 75,000 Dr. This net debit represents Goodwill (i.e.,
purchase consideration paid in excess of net assets acquired). Under Purchase method,
Goodwill is shown as an asset in transferee's books.
So we transfer the net debit to Goodwill:
Goodwill A/c Dr 75,000
To Business Purchase A/c 75,000
 (Being excess of purchase consideration over net assets transferred to Goodwill)
Now Business Purchase A/c is closed (balanced).
3. Settlement of consideration (issue of shares to Liquidator)
When Q Ltd. issues 50,000 shares of ₹10 each fully paid to Liquidator of P Ltd.:
Liquidator of P Ltd. A/c Dr 500,000
To Share Capital A/c 500,000
(Being 50,000 shares of ₹10 each issued to Liquidator in settlement of purchase
consideration)
Note: If Q Ltd. has a Securities Premium, the credit would split between Share Capital and
Securities Premium; here shares issued are at par so all to Share Capital.

C. Summary of ledger effects in Q Ltd. (post-amalgamation balances)

Let's list Q Ltd.’s new assets and liabilities after entries above.
Assets (₹):
 Fixed Assets = 300,000
 Investments = 50,000
 Stock = 60,000
 Debtors = 40,000
 Bank = 10,000
 Goodwill = 75,000
Total assets = 300,000 + 50,000 + 60,000 + 40,000 + 10,000 + 75,000 = 535,000
Liabilities & Equity (₹):
 Creditors = 30,000
 Bills Payable = 5,000
 Share Capital (existing Q Ltd. capital + new shares issued) = We assume no pre-existing Q
Ltd. capital for simplicity; if Q had pre-existing capital, add it here. For this example Share
Capital = 50,000 shares × ₹10 = 500,000.
Total Liabilities & Equity = 30,000 + 5,000 + 500,000 = 535,000
Assets = Liabilities + Equity → 535,000 = 535,000
Interpretation: Purchase consideration ₹500,000 created Goodwill ₹75,000 because net
assets acquired were ₹425,000. Q Ltd.’s balance sheet includes the transferred assets and
liabilities and the goodwill.

D. Final Balance Sheet of Q Ltd. (after amalgamation) — simplified

Q Ltd. — Balance Sheet (extract) after amalgamation
(₹)
Liabilities
 Creditors: 30,000
 Bills Payable: 5,000
 Share Capital (50,000 shares of ₹10 each): 500,000
Total Liabilities & Equity: 535,000
Assets
 Fixed Assets: 300,000
 Investments: 50,000
 Stock: 60,000
 Debtors (net): 40,000
 Bank: 10,000
 Goodwill: 75,000
Total Assets: 535,000
 E. Short working-note summary (digit by digit)
1. Assets transferred: 300,000 + 50,000 + 60,000 + 40,000 + 10,000 = 460,000.
2. Liabilities transferred: 30,000 + 5,000 = 35,000.
3. Net assets taken = 460,000 − 35,000 = 425,000.
4. Purchase consideration = 50,000 shares × ₹10 = 500,000.
5. Excess paid (Goodwill) = 500,000 − 425,000 = 75,000.

F. How to use this template to solve other problems

1. Compute total assets transferred (add every asset). Show each addition step.
2. Compute total liabilities taken over (add each).
3. Net assets = assets − liabilities.
4. Purchase consideration — convert share issue / cash / debentures to monetary value (show
multiplication).
5. Goodwill (if Purchase method) = Purchase consideration − Net assets. If negative, it’s a
capital reserve (bargain purchase) — treat accordingly.
6. In transferor: pass all assets to Realisation (Dr), liabilities to Realisation (Cr), record
consideration receivable (Cr), close Realisation and transfer balances to
Liquidator/Shareholders. Show distribution of shares or cash.
7. In transferee: Debit Business Purchase with consideration, record assets (Dr), liabilities
(Cr), and transfer net difference to Goodwill or Capital Reserve as required; then discharge
Liquidator by issuing shares / paying cash / debentures.

If you want, I can now:

 (A) Solve the same data under Pooling of Interest (so you can compare both methods), or
 (B) Take one of your uploaded PDF problems (I can extract a problem and solve it exactly in
this format with ledger T-accounts + final Balance Sheet + working notes).
Tell me which next — I will proceed and solve it immediately.
Great — I’ll proceed and apply the same numerical data from the last example but now
under the POOLING OF INTEREST (Pooling) METHOD. You’ll get clean journal
entries (with narrations) in the books of Transferor (P Ltd.) and Transferee (Q Ltd.),
working notes (digit-by-digit arithmetic), and the post-amalgamation balance sheet of Q
Ltd. — ready to use as a template for similar problems.

Recap of data (same as before)

Transferor P Ltd. (book figures, ₹)
 Fixed assets = 300,000
 Investments = 50,000
 Stock = 60,000
 Debtors = 40,000 (Provision already made ₹4,000 — assume debtors shown net in books)
 Cash/Bank = 10,000
 Creditors = 30,000
 Bills payable = 5,000
 Share capital (40,000 shares of ₹10) = 400,000
 General reserve = 25,000
Net assets check: Assets 300,000 + 50,000 + 60,000 + 40,000 + 10,000 = 460,000. Liabilities
30,000 + 5,000 = 35,000. Net assets = 460,000 − 35,000 = 425,000. Equity = 400,000 +
25,000 = 425,000.
Purchase consideration agreed previously = ₹500,000 to be settled by issuing 50,000 shares
of ₹10 each of Q Ltd. Under pooling method we treat shares issued as share exchange and
combine book values — no goodwill arises; reserves are carried forward.
 A. In the books of Transferor Company (P Ltd.) — Pooling method
1. Transfer assets to Realisation A/c (book values):
Realisation A/c Dr 300,000
To Fixed Assets A/c 300,000
(Being fixed assets transferred to Realisation A/c)

Realisation A/c Dr 50,000

To Investments A/c 50,000
(Being investments transferred to Realisation A/c)

Realisation A/c Dr 60,000

To Stock A/c 60,000
(Being stock transferred to Realisation A/c)

Realisation A/c Dr 40,000

To Debtors A/c 40,000
(Being debtors transferred to Realisation A/c)

Realisation A/c Dr 10,000

To Bank A/c 10,000
(Being cash transferred to Realisation A/c)
(Assets total transferred = 460,000.)
2. Transfer liabilities to Realisation A/c:
Creditors A/c Dr 30,000
Bills Payable A/c Dr 5,000
To Realisation A/c 35,000
(Being creditors and bills transferred to Realisation A/c)
(Liabilities total = 35,000.)
3. Record purchase consideration receivable from transferee
Under pooling, consideration is shown as payable to Liquidator but it is a share-exchange —
still record Transferee as debtor until shares received:
Transferee (Q Ltd.) A/c Dr 500,000
To Realisation A/c 500,000
(Being purchase consideration receivable from Q Ltd.)
4. Close Realisation A/c
Compute Realisation balance:
 Debit side (assets) = ₹460,000
 Credit side (liabilities + consideration) = ₹35,000 + ₹500,000 = ₹535,000
Net credit = ₹75,000 (i.e., credit balance of Realisation A/c). Under pooling, this difference
does NOT become goodwill; instead we treat it as a transfer to preference — but standard
Pooling practice: net credit (excess of consideration over net assets) is distributed to equity
— actually, in pooling we do not recognize goodwill; the difference usually equals the
increase in capital of transferee issued to absorb transferor's equity. In the transferor's books
we simply transfer capital & reserves to Liquidator and set off with consideration received
later. So we close Realisation by transferring to Capital Reserve or directly adjust
shareholders’ accounts. For clarity:
Realisation A/c Dr 75,000
To Capital Reserve A/c 75,000
(Being gain on realisation transferred to Capital Reserve)
5. Transfer capital & reserves to Liquidator (to be settled by shares):
Opening balances:
 Share Capital = 400,000
 General Reserve = 25,000
 Capital Reserve (from Realisation) = 75,000
Total distributable = 500,000.
Journal:
Share Capital A/c Dr 400,000
General Reserve A/c Dr 25,000
Capital Reserve A/c Dr 75,000
To Liquidator of P Ltd. A/c 500,000
(Being capital and reserves transferred to Liquidator for distribution to shareholders)
6. On receipt of shares from Q Ltd. (Liquidator receives 50,000 shares of Q Ltd. — shown in
P Ltd. books):
Shares in Q Ltd. A/c Dr 500,000
To Liquidator of P Ltd. A/c 500,000
(Being shares of Q Ltd. received by Liquidator against purchase consideration)
7. Distribution to shareholders (Liquidator settlements) — Liquidator settles shareholders
(entry simplified):
Liquidator of P Ltd. A/c Dr 500,000
To Shareholders A/c 500,000
(Being distribution of shares among shareholders)
Net effect in P Ltd.: assets & liabilities gone, shareholders receive shares of Q Ltd., P Ltd.
wound up.

B. In the books of Transferee Company (Q Ltd.) — Pooling method

Under Pooling of Interest, the transferee records assets and liabilities at their existing book
values, and the issued shares are recorded as issued, but no goodwill or capital reserve for
excess arises — effectively we merge the book values and treat the consideration as a
substitution of equity.
Key principle: Aggregate balances of share capital and reserves of transferor are carried
over into transferee by appropriate issue of shares (i.e., swap ratio must be such that value of
shares issued equals transferor’s equity). In our data transferor’s equity = ₹425,000 (capital +
reserve) but earlier we saw total distributable was ₹500,000 because Realisation produced a
₹75,000 credit (this came from consideration > net assets). Under strict pooling, such a gain
should not arise — pooling assumes no consideration paid in excess of book value.
However the parties have agreed a consideration ₹500,000 > net assets ₹425,000. For
illustrating pooling with existing numbers, we will show standard pooled treatment but must
reflect that Q Ltd. issued shares worth ₹500,000 — that issuance will be matched by carrying
across P Ltd.’s capital and reserves of ₹425,000 and a balancing figure of Capital Reserve /
Revaluation Reserve as appropriate. Practical approach for teaching: show transfer of book
values and then record the issue of shares; any difference is shown in a Capital Reserve (if
consideration less than net assets) or in practice under pooling the excess is adjusted against a
separate account (but standards vary). To keep it educational and consistent with typical
textbook pooling entries, do the following:
Step 1 — Record assets taken over at book values:
Fixed Assets A/c Dr 300,000
Investments A/c Dr 50,000
Stock A/c Dr 60,000
Debtors A/c Dr 40,000
 Bank A/c Dr 10,000
To Creditors A/c 30,000
To Bills Payable A/c 5,000
To P Ltd. Share Capital A/c 400,000
To P Ltd. General Reserve A/c 25,000
(Being assets and liabilities of P Ltd. taken over and P Ltd.'s capital & reserve recorded in Q
Ltd.)
Working breakdown (digit steps):
 Assets total = 460,000 (300,000 + 50,000 + 60,000 + 40,000 + 10,000)
 Liabilities = 35,000 (30,000 + 5,000)
 Net assets = 425,000 (460,000 − 35,000)
 P Ltd.’s equity carried = 425,000 (400,000 capital + 25,000 reserve).
Note: The credit side in the journal equals net assets 425,000 plus liabilities credited
separately (35,000) — totals match debits 460,000.
Step 2 — Record issue of Q Ltd.’s shares to absorb P Ltd.’s shareholders
Q Ltd. issues 50,000 shares of ₹10 each (₹500,000) to Liquidator. Under pooling, the
transferee will credit its Share Capital for the shares issued and must reconcile the difference
between issue value (500,000) and net assets carried (425,000). In pooling, such excess is
usually adjusted by reducing any existing reserves of transferee or creating a Capital
Reserve. For clarity in teaching, we show:
Liquidator of P Ltd. A/c Dr 500,000
To Share Capital A/c 500,000
(Being 50,000 shares of ₹10 issued to Liquidator in settlement of purchase consideration)
Step 3 — Set off P Ltd. capital & reserves (carried over) against Liquidator A/c
Now we transfer the carried over P Ltd. equity to Liquidator (i.e., to record that Liquidator is
entitled to those amounts):
P Ltd. Share Capital A/c Dr 400,000
P Ltd. General Reserve A/c Dr 25,000
To Liquidator of P Ltd. A/c 425,000
(Being P Ltd.'s capital & reserves transferred to Liquidator A/c)
After the above, the Liquidator account in Q Ltd. will show:
 Debit 500,000 (from issuing shares)
 Credit 425,000 (from transfer of P Ltd. equity)
 Net debit = 75,000 (i.e., balance in Liquidator A/c represents the excess of shares issued
over net assets carried).
Step 4 — Closing the Liquidator difference
Under pooling the ideal is that there is no such excess. But since issue value > net assets
carried, the difference can be treated as Capital Reserve (or 'Revaluation Reserve'
depending on treatment) created in transferee for balancing entries (textbook problems
often create a Capital Reserve in transferor or transferee depending on method). For
instruction, we transfer the balance to Capital Reserve A/c:
Liquidator of P Ltd. A/c Dr 75,000
To Capital Reserve A/c 75,000
(Being excess of consideration over net assets carried adjusted to Capital Reserve)
After this Liquidator A/c is closed (500,000 Dr and 425,000 Cr and 75,000 Dr cleared).
Balance sheet now reflects pooled book values plus an opening Capital Reserve of ₹75,000.

C. Q Ltd. — Post-amalgamation balances (under Pooling) — Assets & Liabilities

Assets (₹):
 Fixed Assets = 300,000
 Investments = 50,000
 Stock = 60,000
 Debtors = 40,000
 Bank = 10,000
 Total assets from P Ltd. carried = 460,000
Liabilities & Equity (₹):
 Creditors = 30,000
 Bills Payable = 5,000
 Share Capital (Q Ltd. existing + new issue) = Assume only new issue for simplicity 500,000
 P Ltd.’s General Reserve carried = 25,000 (already included in equity narrative but put under
reserves item)
 Capital Reserve (created for balancing) = 75,000
However, to present the balance sheet consolidated, list:
Liabilities & Equity
 Creditors = 30,000
 Bills Payable = 5,000
 Share Capital = 500,000
 General Reserve (carried from P Ltd.) = 25,000
 Capital Reserve (balancing figure) = 75,000
 Total Liabilities & Equity = 30,000 + 5,000 + 500,000 + 25,000 + 75,000 = 635,000
But note: Asset total above was 460,000 (only P Ltd. assets). For a proper Q Ltd. balance
sheet we must include Q Ltd.’s own pre-existing assets & liabilities; earlier Purchase-
method example assumed Q had no pre-existing balances — for consistent comparison,
assume Q had zero prior balances. If Q had no prior assets, then after pooling total assets
should equal total liabilities & equity. Our current totals mismatch because we double-
counted: when we carried P Ltd.’s reserves as separate line items and also included Share
Capital of 500,000, the total equity will be Share Capital (500,000) only — the carried
reserves and capital reserve are components of shareholders’ equity, not additive to share
capital. We must present consolidated equity properly:
Correct presentation (when Q had no prior balances):
Total Assets (after amalgamation) = Assets taken over = 460,000.
Total Liabilities = 35,000.
Therefore Total Equity (Net Assets) = 460,000 − 35,000 = 425,000.
But Q has issued share capital of ₹500,000. To balance, the difference of ₹75,000 must be
presented as a Debit or negative adjustment unless we create an asset or reserve. The
correct pooled approach is: the transferee records the transferor’s assets and liabilities and
records the transferee’s shares issued. Then create a Capital Reserve (Debit or Credit as
needed) to reconcile.
The simplest, student-friendly consolidated balance sheet under pooling (assuming no
pre-existing Q balances) is:
Assets
 Fixed Assets 300,000
 Investments 50,000
 Stock 60,000
 Debtors 40,000
 Bank 10,000
 Total Assets = 460,000
Equity & Liabilities
 Creditors 30,000
 Bills Payable 5,000
 Share Capital (50,000 shares of ₹10) 500,000
 Less: Capital Reduction (or Capital Reserve used to adjust) (75,000)
Net Shareholders Funds = 425,000
Total Liabilities & Equity = 35,000 + 425,000 = 460,000
(Another presentation would carry Capital Reserve as +75,000 but then assets would be
535,000 — that corresponds to purchase method. For Pooling strictly: the book values must
be merged and shares issued should be in exchange for proportionate share allotment such
that no artificial excess arises. Textbook pooling problems normally choose share issue equal
to transferor equity; since here issue was 500,000 while equity = 425,000, the pooling
assumption is violated. For teaching, we show the balancing adjustment as a Capital
Reduction/Capital Reserve adjustment.)

D. Teaching/Practical Notes — How to handle differences between Pooling & Purchase

in problems
1. Pooling of Interest requires that the transferee accept assets & liabilities at book values
and that no goodwill is recognized. The share exchange must reflect the book value of
transferor’s net assets. In textbook problems when share issue value ≠ net assets, authors
typically:
o Either choose share issue equal to net assets so no balancing figure arises (clean pooling), or
o If share issue ≠ net assets, show the difference as Capital Reserve (credit) or Capital
Reduction/Goodwill (debit) depending on sign — but this mixes pooling & purchase
features.
2. Purchase Method (previous example) recognizes Goodwill when payment > net assets
(clear and clean). It also records purchase consideration and goodwill explicitly — simpler
when consideration exceeds book value.
3. For your exam/homework: check instructions — if the question says "Pool the interests",
ensure share exchange equals book value of transferor’s net assets. If not, use purchase
method.

E. Final concise journal-entry summary

(Pooling method) — Q Ltd. (clean textbook format when issue equals transferor’s
equity)
If the parties had agreed share issue equal to net assets (i.e., issue shares of ₹42.50 per share
or an equivalent number so total issue = ₹425,000), the clean pooling entries would be:
1. Record assets & liabilities (book values):
Fixed Assets A/c Dr 300,000
Investments A/c Dr 50,000
Stock A/c Dr 60,000
Debtors A/c Dr 40,000
Bank A/c Dr 10,000
To Creditors A/c 30,000
To Bills Payable A/c 5,000
To P Ltd. Capital A/c 425,000
(Being transferor's assets & liabilities taken over and capital carried forward)
2. Issue shares to Liquidator equal to P Ltd.’s equity:
Liquidator of P Ltd. A/c Dr 425,000
To Share Capital A/c 425,000
(Being issue of shares in exchange for P Ltd.'s equity)
Then Liquidator transfers shares to shareholders and everything balances without goodwill or
capital reserve.
 F. Practical recommendation for students (short & actionable)
 For exam problems: first compute net assets (assets − liabilities).
 If the question explicitly says Pooling of Interest, ensure share issue value = net assets (or
else teacher might expect you to create an adjusting account — read question carefully).
 If share issue > net assets, prefer Purchase Method treatment (recognize Goodwill) unless
question forces pooling.
 Always show: (a) Journal entries in Transferor (Realisation and distribution), (b) Journal
entries in Transferee (assets & liabilities taken, shares issued, and goodwill or reserve
adjustments), (c) Final Balance Sheet with workings.

Amalgamation — Journal Entry Format (Summary)

I. In the Books of Transferor Company (Vendor Co.)
(For Both Methods – Same Entries)
1. Transfer of Assets
Realisation A/c Dr
To Sundry Assets A/c
2. Transfer of Liabilities
Sundry Liabilities A/c Dr
To Realisation A/c
3. Record Purchase Consideration Receivable
Transferee Co. A/c Dr
To Realisation A/c
4. Receipt of Consideration (Shares/Cash/Debentures)
Shares in Transferee Co. A/c Dr
Bank A/c Dr
To Transferee Co. A/c
5. Distribution to Shareholders
Shareholders A/c Dr
To Shares in Transferee Co. A/c
To Bank A/c

II. In the Books of Transferee Company (Purchasing Co.)

(A) Pooling of Interest Method
1. Business Purchase (only if separate account is opened)
Business Purchase A/c Dr
To Liquidator of Transferor Co. A/c
2. Take Over Assets & Liabilities at Book Value
Sundry Assets A/c Dr
To Sundry Liabilities A/c
To Business Purchase A/c
3. Discharge of Consideration (issue of shares, etc.)
Liquidator of Transferor Co. A/c Dr
To Share Capital A/c
To Securities Premium A/c (if any)
Note: No Goodwill is recognized. Assets & reserves of Transferor are carried forward at
book values.

(B) Purchase Method

1. Business Purchase (record purchase consideration)
 Business Purchase A/c Dr
To Liquidator of Transferor Co. A/c
2. Record Assets & Liabilities at Agreed Values
Sundry Assets A/c Dr
Goodwill A/c Dr (if PC > Net Assets)
To Sundry Liabilities A/c
To Business Purchase A/c
To Capital Reserve A/c (if PC < Net Assets)
3. Discharge of Consideration
Liquidator of Transferor Co. A/c Dr
To Share Capital A/c
To Securities Premium A/c (if any)
To Bank A/c
Note: Goodwill/Capital Reserve is recognized depending on difference between PC and Net
Assets.

Working Note Template (always required)

1. Compute Total Assets taken = Add up all assets.
2. Compute Total Liabilities taken = Add up all liabilities.
3. Net Assets = Assets − Liabilities.
4. Purchase Consideration (PC) = As per agreement (shares issued × FV + cash).
5. If PC > Net Assets → record as Goodwill (Purchase Method).
6. If PC < Net Assets → record as Capital Reserve (Purchase Method).
7. Under Pooling → no Goodwill; take values at book values; reserves also carried forward.

Quick summary of the important data (from the question paper)

 Agreed value (purchase consideration) of X Ltd. = ₹ 20,00,000.
Consideration to be discharged by issuing equity shares of ₹10 each at a premium of ₹6 (i.e.
issue price ₹16).
Liquidation expenses for X borne by XY Ltd = ₹ 5,000.
 Agreed value (purchase consideration) of Y Ltd. = ₹ 8,00,000.
Consideration to be discharged by issuing equity shares of ₹10 each at ₹16 (same issue
price).
Liquidation expenses for Y borne by XY Ltd = ₹ 4,000.
(From the balance-sheets printed in the paper: totals for X = ₹16,00,000; totals for Y =
₹5,60,000. I use the printed asset / liability lines to pass the Realisation transfers — but for
the journal entries and computations we only need the totals and the break-ups that appear in
the paper. If you want T-accounts for every single ledger, I can add them next.)

Part A — X Ltd. (Transferor) (We will pass journal entries in the books of X Ltd. only. All
amounts ₹)
Step 0 — data (from the Balance Sheet printed)
 Total Assets (book) taken over by transferee = ₹ 16,00,000
 Total Current Liabilities (Creditors etc.) taken over = ₹ 40,000
 Net book value (Equity & Reserves) = Assets − Liabilities = ₹ 16,00,000 − ₹ 40,000 = ₹
15,60,000

premium ₹6 ⇒ issue price ₹16 per share).

 Purchase consideration agreed = ₹ 20,00,000 (to be issued as equity shares of ₹10 each at

 Liquidation expenses borne by transferee (XY Ltd) = ₹ 5,000.

 Working — compute profit on realisation (X Ltd.)
 Realisation (Dr) side = Assets (book) + Liquidation expenses (since expense arises in
winding up)
 = 16,00,000 + 5,000 = ₹ 16,05,000.
 Realisation (Cr) side = Liabilities taken (₹ 40,000) + Purchase consideration receivable from
XY Ltd (₹ 20,00,000)
 = 40,000 + 20,00,000 = ₹ 20,40,000.
 Profit on Realisation = 20,40,000 − 16,05,000 = ₹ 4,35,000 → transferable to Capital
Reserve (or Realisation Profit).

Journal entries in X Ltd. — presented step by step (with narration)

1. Transfer of assets to Realisation A/c
2. (Here I show a single combined entry — if you want line-by-line, break each asset out
separately as in the paper.)
Realisation A/c Dr 16,00,000
To Various Asset A/c (as per balance-sheet) 16,00,000
(Being assets of X Ltd. transferred to Realisation A/c at book values)
2. Transfer of liabilities to Realisation A/c
Creditors (and other liabilities) A/c Dr 40,000
To Realisation A/c 40,000
(Being liabilities taken over)
3. Record purchase consideration receivable from transferee (XY Ltd.)
4. (agreed worth = ₹20,00,000)
XY Ltd. A/c (Transferee) Dr 20,00,000
To Realisation A/c 20,00,000
(Being purchase consideration receivable from XY Ltd. recorded in Realisation)
4. Record liquidation expenses (borne by XY Ltd.)
5. ( Liquidator will incur the expense but XY Ltd. has agreed to bear it — in the transferor’s
books we record expense in Realisation and record receivable from transferee for
reimbursement )
Realisation A/c Dr 5,000
To XY Ltd. A/c (Transferee) 5,000
(Being liquidation expenses of X Ltd. borne by XY Ltd. — treatment: expense debited to
Realisation and receivable from XY Ltd.)
5. Close Realisation A/c — transfer profit on realisation to Capital Reserve
We computed Profit on Realisation = ₹4,35,000.
Realisation A/c Dr 4,35,000
To Capital Reserve A/c 4,35,000
(Being profit on realisation transferred to Capital Reserve)
(After this entry Realisation A/c will be nil.)
6. Transfer capital and reserves to Liquidator (i.e. make Liquidator creditor for
distribution)
(Use the balances from balance-sheet: Preference capital ₹4,00,000; Equity share capital
₹8,00,000; Reserves ₹1,60,000; P&L ₹2,00,000 → total ₹15,60,000)
Preference Share Capital A/c Dr 4,00,000
Equity Share Capital A/c Dr 8,00,000
Reserves A/c Dr 1,60,000
Profit & Loss A/c Dr 2,00,000
To Liquidator of X Ltd. A/c 15,60,000
(Being share capital and reserves transferred to Liquidator for distribution to shareholders)
7. On receipt of consideration (shares of XY Ltd. issued to Liquidator)
(XY Ltd. issues shares to Liquidator — in X Ltd.’s books the receipt is recorded as Shares in
XY Ltd.)
Shares in XY Ltd. A/c Dr 20,00,000
To Liquidator of X Ltd. A/c 20,00,000
(Being shares of XY Ltd. received by Liquidator in settlement of purchase consideration)
8. Distribution of consideration (shares) to shareholders through Liquidator
(Liquidator distributes received consideration to shareholders by their entitlements)
Liquidator of X Ltd. A/c Dr 20,00,000
To Shareholders A/c 20,00,000
(Being distribution of shares of XY Ltd. among shareholders of X Ltd.)
Check / Interpretation (X Ltd.):
 Net effect: assets & liabilities removed from X Ltd., shareholders receive shares of XY Ltd.
worth ₹20,00,000.
 X Ltd. realisation produced a profit of ₹4,35,000 which was transferred to Capital Reserve
before winding up.
 Liquidation expenses of ₹5,000 were recorded in Realisation but treated as
payable/reimbursable by XY Ltd. (so XY Ltd. A/c is debited earlier). When XY Ltd. actually
issues the shares to Liquidator this clears the XY Ltd. A/c in the transferor books when final
settlement entries are passed (in combined entries above Liquidator receipts and distributions
net off).

Part B — Y Ltd. (Transferor)

Step 0 — data (from the Balance Sheet printed)
 Total Assets (book) taken over = ₹ 5,60,000
 Total Liabilities taken over (creditors etc.) = ₹ 20,000
 Net book value (Equity & Reserves) = 5,60,000 − 20,000 = ₹ 5,40,000 (this should equal the
sum of share capital + reserves / P&L as printed — check paper: equity shares ₹4,00,000;
reserves ₹1,00,000; P&L −40,000 → gives 4,60,000? — the printed numbers indicate net
equity of ₹4,60,000 but the totals in the paper for Y show total 5,60,000 — to reconcile: the
printed paper shows values that combine preference/equity; I used the printed totals for assets
& liabilities and the printed agreed value. (If the small line-items differ on your copy, send
the exact figures and I’ll correct the arithmetic.) )
(For the purpose of journal entries / exam solution we will use the printed totals: Total assets
5,60,000; creditors 20,000; agreed consideration = ₹8,00,000; liquidation expenses borne by
XY Ltd = ₹4,000.)
Working — compute profit on realisation (Y Ltd.)
 Realisation (Dr) side = Assets + Liquidation expenses = 5,60,000 + 4,000 = ₹ 5,64,000.
 Realisation (Cr) side = Liabilities (₹ 20,000) + Purchase consideration receivable from XY
Ltd (₹ 8,00,000) = ₹ 8,20,000.
 Profit on Realisation = 8,20,000 − 5,64,000 = ₹ 2,56,000 → transfer to Capital Reserve.

Journal entries in Y Ltd. — step by step

1. Transfer assets to Realisation A/c
Realisation A/c Dr 5,60,000
To Various Asset A/c (as per Y's balance-sheet) 5,60,000
(Being assets of Y Ltd. transferred to Realisation A/c at book values)
2. Transfer liabilities to Realisation A/c
Creditors A/c Dr 20,000
To Realisation A/c 20,000
 (Being liabilities of Y Ltd. taken over)
3. Record purchase consideration receivable from XY Ltd.
XY Ltd. A/c (Transferee) Dr 8,00,000
To Realisation A/c 8,00,000
(Being purchase consideration receivable from XY Ltd. for Y Ltd.)
4. Record liquidation expenses (borne by XY Ltd.)
Realisation A/c Dr 4,000
To XY Ltd. A/c (Transferee) 4,000
(Being liquidation expenses of Y Ltd. borne by XY Ltd. — recorded as receivable from XY
Ltd.)
5. Close Realisation A/c — transfer profit on realisation to Capital Reserve
Profit on realisation = ₹ 2,56,000.
Realisation A/c Dr 2,56,000
To Capital Reserve A/c 2,56,000
(Being profit on realisation transferred to Capital Reserve)
6. Transfer capital and reserves to Liquidator

−40,000 ⇒ total equity carried forward (if question table prints that) — I will show net
7. (Use balances from balance-sheet: Equity share capital ₹4,00,000; Reserves ₹1,00,000; P&L

transfer as appears in question: sum = ₹ 4,60,000. )

Equity Share Capital A/c Dr 4,00,000
Reserves A/c Dr 1,00,000
Profit & Loss A/c Dr 40,000 *(if debit balance show as Dr)
To Liquidator of Y Ltd. A/c 4,60,000
(Being capital and reserves of Y Ltd. transferred to Liquidator for distribution)
Note: If P&L has debit (loss) of ₹40,000 it will be shown as reduction in the amounts
transferred — the above line assumes the net amount equals the printed balances. Use the
exact line-items from your copy.
7. On receipt of consideration (shares of XY Ltd. issued to Liquidator)
Shares in XY Ltd. A/c Dr 8,00,000
To Liquidator of Y Ltd. A/c 8,00,000
(Being shares of XY Ltd. received by Liquidator in settlement of purchase consideration)
8. Distribution of consideration (shares) to shareholders through Liquidator
Liquidator of Y Ltd. A/c Dr 8,00,000
To Shareholders A/c 8,00,000
(Being distribution of shares of XY Ltd. among shareholders of Y Ltd.)
Check / Interpretation (Y Ltd.) :
 Realisation produced profit of ₹2,56,000 which is transferred to Capital Reserve.
 Liquidation expenses of ₹4,000 are shown in Realisation and charged to XY Ltd. (receivable
from transferee), because transferee agreed to bear them.
 Shareholders of Y receive shares of XY Ltd. totalling ₹8,00,000.

Part C — Additional working (useful for exam answer)

For X Ltd. : Consideration = ₹20,00,000; issue price per share = ₹16 ⇒ number of shares =
Number of shares to be issued by XY Ltd.


For Y Ltd. : Consideration = ₹8,00,000; issue price per share = ₹16 ⇒ number of shares =
20,00,000 ÷ 16 = 1,25,000 shares.

8,00,000 ÷ 16 = 50,000 shares.
(If the question asks to show journal entries in the books of the transferee XY Ltd. as well,
we can prepare those too — they will show: Business Purchase A/c Dr with consideration;
 assets and liabilities taken over at book values; goodwill / capital reserve (difference) and
issue of share capital and securities premium as required.)

Part D — Short answer format (for marks) — Table of required journal entries
(compact form)
Below is the compact table you can write in the answer book (one-liners, each entry with
amount and narration). Use the same pattern for both X and Y (I print the X-entries first then
Y-entries).
X Ltd.
Amount
No. Journal entry (Dr → Cr)
(₹)
1 Realisation A/c Dr → To Various Assets A/c 16,00,000
2 Creditors A/c Dr → To Realisation A/c 40,000
3 XY Ltd. A/c Dr → To Realisation A/c (Purchase consideration receivable) 20,00,000
Realisation A/c Dr → To XY Ltd. A/c (Liquidation expenses borne by XY
4 5,000
Ltd.)
5 Realisation A/c Dr → To Capital Reserve A/c (Profit on realisation) 4,35,000
(Transfer of capital & reserves to Liquidator) Preference Capital Dr, Equity
6 15,60,000
Capital Dr, Reserves Dr, P&L Dr → To Liquidator A/c
Shares in XY Ltd. A/c Dr → To Liquidator A/c (Receipt of shares from XY
7 20,00,000
Ltd.)
8 Liquidator A/c Dr → To Shareholders A/c (Distribution) 20,00,000
Y Ltd.
Amount
No. Journal entry (Dr → Cr)
(₹)
1 Realisation A/c Dr → To Various Assets A/c 5,60,000
2 Creditors A/c Dr → To Realisation A/c 20,000
3 XY Ltd. A/c Dr → To Realisation A/c (Purchase consideration receivable) 8,00,000
Realisation A/c Dr → To XY Ltd. A/c (Liquidation expenses borne by XY
4 4,000
Ltd.)
5 Realisation A/c Dr → To Capital Reserve A/c (Profit on realisation) 2,56,000
Equity Capital Dr, Reserves Dr, (P&L Dr if loss) → To Liquidator A/c
6 4,60,000
(transfer of cap & reserves)
7 Shares in XY Ltd. A/c Dr → To Liquidator A/c (Receipt of shares) 8,00,000
8 Liquidator A/c Dr → To Shareholders A/c (Distribution) 8,00,000

Solver’s notes (for full marks & presentation)

1. Write clear workings first (assets total, liabilities total, net assets, consideration, liquidation
expenses, compute realisation profit). Examiners like to see arithmetic before journal entries.

those numbers. (X ⇒ 1,25,000 shares; Y ⇒ 50,000 shares).

2. Show the computation of shares to be issued (divide consideration by issue price). Write

3. State the method: Here treatment is Purchase method (because companies are taken over at
agreed values higher than book values and goodwill/capital reserve arises). If the question
had asked pooling, treatment differs.
4. Liquidation expenses borne by transferee — show as a Realisation expense in transferor’s
books and as receivable from transferee (XY Ltd.). This is the standard examination
approach.
5. If the paper requires only journal entries in transferor books, stop here. If it also requires
accounts (Realisation A/c, Liquidator A/c, Capital Reserve A/c), prepare T-accounts and
show balancing — I can produce those as clean tables next.

Amalgamation — Pooling of Interests (Merger)

Part A — Problem (Pooling of Interests / Amalgamation in the Nature of Merger)
Problem: Aurora Ltd. and Boreal Ltd. decide to amalgamate on 31st March 2025. The
following are their Balance Sheets (₹ in lakhs):
Aurora Ltd. (Transferor A)
Liabilities Amount Assets Amount
Share Capital (₹10) 80.00 Land & Building 60.00
General Reserve 20.00 Plant & Machinery 40.00
Profit & Loss A/c (Cr) 10.00 Investments 15.00
Creditors 25.00 Stock 20.00
Debtors 20.00
Total 135.00 Total 155.00
Boreal Ltd. (Transferor B)
Liabilities Amount Assets Amount
Share Capital (₹10) 50.00 Land & Building 35.00
General Reserve 10.00 Plant & Machinery 20.00
Profit & Loss A/c (Dr) (5.00) Investments 10.00
Creditors 20.00 Stock 15.00
Bills Payable 5.00 Debtors 25.00
Cash & Bank 5.00
Total 80.00 Total 105.00
Agreed terms: 1. The amalgamation is in the nature of merger (Pooling of Interests). 2.
Aurora Ltd. and Boreal Ltd. will be combined into a new company — Polaris Ltd. — on the
basis of the following exchange ratios: - For every 2 shares of Aurora ( ₹10) — 3 shares of
Polaris (₹10 each) will be issued. - For every 1 share of Boreal ( ₹10) — 1 share of Polaris
(₹10 each) will be issued. 3. All assets and liabilities are taken over at book values. No
consideration is paid in cash or goodwill. 4. Reserves and P&L balances of transferor
companies will be carried forward in the books of Polaris.
Prepare: - a) Journal entries in the books of Aurora Ltd. and Boreal Ltd. (transferor
companies) to record the amalgamation by pooling of interests. - b) Journal entries in the
books of Polaris Ltd. (transferee/new company). - c) Proforma opening Balance Sheet of
Polaris Ltd. after amalgamation.

Part A — Solution (Pooling Method)

Step 1 — Determine number of Polaris shares to be issued
 Aurora share capital = ₹80 lakhs (₹10 each) → 8,00,000 shares.
o Exchange: 2 Aurora → 3 Polaris → For 8,00,000 Aurora shares Polaris shares = (8,00,000 ÷
2) × 3 = 4,00,000 × 3 = 12,00,000 Polaris shares.
o Face value of Polaris shares = ₹10 → Value issued to Aurora shareholders = 12,00,000 ×
₹10 = ₹120 lakhs.
 Boreal share capital = ₹50 lakhs (₹10 each) → 5,00,000 shares.
o Exchange: 1 Boreal → 1 Polaris → Polaris shares = 5,00,000.
o Value issued to Boreal shareholders = 5,00,000 × ₹10 = ₹50 lakhs.
 Total Polaris shares issued = 12,00,000 + 5,00,000 = 17,00,000 shares (₹170 lakhs).
 Note: Under pooling, share capitals of transferor companies are carried into the
transferee at their book amounts — effectively the new company recognizes the share
capitals of transferors by issuing its shares according to the swap ratio.
Step 2 — Journal entries in the books of Transferor Companies
(i) In the books of Aurora Ltd.
1. Transfer all assets & liabilities to Polaris A/c (or ‘NewCo A/c’):
Polaris Ltd. A/c Dr. ₹155.00
To Land & Building A/c 60.00
To Plant & Machinery A/c 40.00
To Investments A/c 15.00
To Stock A/c 20.00
To Debtors A/c 20.00
(Being assets transferred to Polaris at book values)
2. Transfer liabilities:
Creditors A/c Dr. 25.00
To Polaris Ltd. A/c 25.00
(Being creditors transferred to Polaris)
3. Transfer reserves and P&L to Polaris (carried forward):
General Reserve A/c Dr. 20.00
Profit & Loss A/c Dr. 10.00
To Polaris Ltd. A/c 30.00
(Being reserves and P&L carried forward)
4. Transfer Share Capital to Polaris (in exchange for Polaris shares):
Share Capital A/c Dr. 80.00
To Polaris Ltd. A/c 80.00
(Being Aurora share capital transferred to Polaris)
5. Close Polaris Ltd. A/c to Shareholders by allotment of Polaris shares:
Polaris Ltd. A/c Dr. 155.00
To Equity Shareholders A/c (Aurora) 120.00
To Equity Shareholders A/c (Aurora - carried items included) 35.00
(Or directly: Polaris Ltd. A/c cleared by transferring consideration by way of shares issued)
Examiners accept a streamlined presentation that shows assets and liabilities being
transferred and share capital carried forward — key is to show the swap and carry-forward
of reserves.
(ii) In the books of Boreal Ltd.
1. Transfer assets & liabilities to Polaris Ltd. A/c:
Polaris Ltd. A/c Dr. ₹105.00
To Land & Building A/c 35.00
To Plant & Machinery A/c 20.00
To Investments A/c 10.00
To Stock A/c 15.00
To Debtors A/c 25.00
To Cash & Bank A/c 5.00
(Being assets transferred to Polaris at book values)
2. Transfer liabilities:
Creditors A/c Dr. 20.00
Bills Payable A/c Dr. 5.00
 To Polaris Ltd. A/c 25.00
(Being liabilities transferred to Polaris)
3. Transfer reserves and profit/loss (note P&L is debit → treated as deduction carried forward):
Polaris Ltd. A/c Dr. 5.00
To Profit & Loss A/c 5.00
(Being Boreal's debit P&L carried forward in Polaris)
4. Transfer share capital in exchange for Polaris shares issued:
Share Capital A/c Dr. 50.00
To Polaris Ltd. A/c 50.00
(Being Boreal share capital transferred to Polaris)
Step 3 — Journal entries in the books of Polaris Ltd. (Transferee/NewCo)
Polaris will record the assets and liabilities acquired and the issue of shares to transferor
shareholders.
1. Record assets taken over (at book values):
Land & Building A/c Dr. 95.00
Plant & Machinery A/c Dr. 60.00
Investments A/c Dr. 25.00
Stock A/c Dr. 35.00
Debtors A/c Dr. 45.00
Cash & Bank A/c Dr. 5.00
To Creditors A/c 45.00
To Bills Payable A/c 5.00
To Equity Share Capital A/c 170.00
(Being assets and outside liabilities taken over and equity capital issued to transferors)
Explanation of equity credit: Polaris issues 17,00,000 shares of ₹10 each = ₹170 lakhs to
settle the transfer.
2. Carry forward reserves and P&L (as part of opening balances):
General Reserve A/c Dr. 30.00
To Equity (Reserves carried to balance sheet) 30.00

Profit & Loss A/c (Net carried forward) Dr. 5.00

To Equity (P&L carried to balance sheet) 5.00
(Reserves and P&L may be shown on the liabilities side of opening balance sheet under
‘Reserves & Surplus’)
Step 4 — Proforma Opening Balance Sheet of Polaris Ltd. (after amalgamation)
(₹ in lakhs)
Liabilities
Particulars Amount
Equity Share Capital (17,00,000 × ₹10) 170.00
Reserves & Surplus (Carried from transferors) 30.00
Profit & Loss A/c (Net carried) 5.00
Creditors 45.00
Bills Payable 5.00
Total 255.00
Assets
Particulars Amount
Land & Building 95.00
Plant & 60.00
 Particulars Amount
Machinery
Investments 25.00
Stock 35.00
Debtors 45.00
Cash & Bank 5.00
Total 255.00
Key points (exam checklist): - Under pooling, assets and liabilities are combined at book
values. - Reserves and accumulated profits/losses are carried forward to the transferee. - No
goodwill is recognized and no cash consideration is paid. - Share capital of transferor
companies is replaced by the share capital of the transferee in agreed exchange ratios.

A. Purchase Method — Compact Journal Entries (Transferor & Transferee)

Transferor (e.g., Brighton Ltd.)
1. Transfer assets to Realisation A/c
Realisation A/c Dr. (Total assets)
To Various Asset A/cs
2. Transfer liabilities to Realisation A/c
Various Liability A/cs Dr.
To Realisation A/c
3. Record Purchase Consideration receivable from Purchaser
Purchaser A/c (Transferee) Dr. (Purchase Consideration)
To Realisation A/c
4. Record receipt of consideration (shares / cash / debentures)
Shares in Purchaser A/c Dr. (if any)
Cash/Bank A/c Dr.
To Purchaser A/c
5. Transfer reserves & P&L to Equity Shareholders A/c; transfer Share Capital to Equity
Shareholders A/c; settle Equity Shareholders A/c by remitting consideration.
Transferee (e.g., Horizon Ltd.)
1. Record assets acquired and liabilities assumed
Various Asset A/cs Dr.
To Various Liability A/cs
To Purchaser Clearing / Business Purchase A/c
2. Recognise goodwill if paid
Goodwill A/c Dr.
To Purchaser / Liquidator A/c
3. Settle consideration by issuing shares / debentures / cash
Purchaser / Liquidator A/c Dr.
To Equity Share Capital A/c
To Preference Share Capital A/c
To Cash/Bank A/c
Key ledger outlines (Transferor) - Realisation A/c — shows assets (Dr) and liabilities +
purchaser (Cr); profit/loss moved to Equity Shareholders. - Purchaser A/c — Dr for
consideration receivable; Cr when settled by shares/cash. - Equity Shareholders A/c —
collects capital, reserves, realisation profits; settled by payment (shares/cash).
 B. Pooling of Interests — Compact Journal Entries (Transferors & Transferee)
Transferors (Aurora & Boreal)
1. Transfer assets to NewCo A/c (Polaris Ltd.)
Polaris Ltd. A/c Dr.
To Assets A/cs
2. Transfer liabilities to Polaris Ltd. A/c
Liabilities A/cs Dr.
To Polaris Ltd. A/c
3. Transfer reserves & P&L (carried forward)
Reserves A/c / P&L A/c Dr. (or Cr.)
To Polaris Ltd. A/c
4. Transfer Share Capital to Polaris Ltd. A/c
Share Capital A/c Dr.
To Polaris Ltd. A/c
5. Polaris shares issued to transferors — Polaris Ltd. A/c cleared by issuing equity
Polaris Ltd. A/c Dr.
To Equity Share Capital A/c (Polaris) — value issued
Transferee (Polaris Ltd.)
1. Record assets acquired and liabilities assumed (at book values)
Assets A/cs Dr.
To Liabilities A/cs
To Equity Share Capital A/c (Polaris)
2. Carry forward reserves & P&L to opening balances (Reserves & Surplus)
Reserves & Surplus (Balancing entries depending on approach)
Key differences (one-line): - Pooling: no goodwill; reserves & capital carried forward;
shares swapped at agreed ratio. - Purchase: purchaser records goodwill (if any); transferor
realises assets/liabilities and distributes consideration; purchaser shows new assets and
considers cost.
Module -5
Module-5
Amalgamation — Pooling of Interests (Merger)

Part A — Problem (Pooling of Interests / Amalgamation in the Nature of Merger)

Problem: Aurora Ltd. and Boreal Ltd. decide to amalgamate on 31st March 2025. The
following are their Balance Sheets (₹ in lakhs):
Aurora Ltd. (Transferor A)
Amoun Amoun
Liabilities t Assets t
Share Capital (₹10) 80.00 Land & Building 60.00
General Reserve 20.00 Plant & Machinery 40.00
Profit & Loss A/c (Cr) 10.00 Investments 15.00
Creditors 25.00 Stock 20.00
Debtors 20.00
Total 135.00 Total 155.00
Boreal Ltd. (Transferor B)
Amoun Amoun
Liabilities t Assets t
Share Capital (₹10) 50.00 Land & Building 35.00
General Reserve 10.00 Plant & Machinery 20.00
Profit & Loss A/c (Dr) (5.00) Investments 10.00
Creditors 20.00 Stock 15.00
Bills Payable 5.00 Debtors 25.00
Cash & Bank 5.00
Total 80.00 Total 105.00
Agreed terms: 1. The amalgamation is in the nature of merger (Pooling of Interests). 2.
Aurora Ltd. and Boreal Ltd. will be combined into a new company — Polaris Ltd. — on the
basis of the following exchange ratios: - For every 2 shares of Aurora ( ₹10) — 3 shares of
Polaris (₹10 each) will be issued. - For every 1 share of Boreal ( ₹10) — 1 share of Polaris
(₹10 each) will be issued. 3. All assets and liabilities are taken over at book values. No
consideration is paid in cash or goodwill. 4. Reserves and P&L balances of transferor
companies will be carried forward in the books of Polaris.
Prepare: - a) Journal entries in the books of Aurora Ltd. and Boreal Ltd. (transferor
companies) to record the amalgamation by pooling of interests. - b) Journal entries in the
books of Polaris Ltd. (transferee/new company). - c) Proforma opening Balance Sheet of
Polaris Ltd. after amalgamation.

Part A — Solution (Pooling Method)

Step 1 — Determine number of Polaris shares to be issued
 Aurora share capital = ₹80 lakhs (₹10 each) → 8,00,000 shares.
o Exchange: 2 Aurora → 3 Polaris → For 8,00,000 Aurora shares Polaris shares
= (8,00,000 ÷ 2) × 3 = 4,00,000 × 3 = 12,00,000 Polaris shares.
o Face value of Polaris shares = ₹10 → Value issued to Aurora shareholders =
12,00,000 × ₹10 = ₹120 lakhs.
 Boreal share capital = ₹50 lakhs (₹10 each) → 5,00,000 shares.
o Exchange: 1 Boreal → 1 Polaris → Polaris shares = 5,00,000.
o Value issued to Boreal shareholders = 5,00,000 × ₹10 = ₹50 lakhs.
 Total Polaris shares issued = 12,00,000 + 5,00,000 = 17,00,000 shares (₹170 lakhs).
 Note: Under pooling, share capitals of transferor companies are carried into the
transferee at their book amounts — effectively the new company recognizes the
share capitals of transferors by issuing its shares according to the swap ratio.
Step 2 — Journal entries in the books of Transferor Companies
(i) In the books of Aurora Ltd.
2. Transfer all assets & liabilities to Polaris A/c (or ‘NewCo A/c’):
Polaris Ltd. A/c Dr. ₹155.00
To Land & Building A/c 60.00
To Plant & Machinery A/c 40.00
To Investments A/c 15.00
To Stock A/c 20.00
To Debtors A/c 20.00
(Being assets transferred to Polaris at book values)
3. Transfer liabilities:
Creditors A/c Dr. 25.00
To Polaris Ltd. A/c 25.00
(Being creditors transferred to Polaris)
4. Transfer reserves and P&L to Polaris (carried forward):
General Reserve A/c Dr. 20.00
Profit & Loss A/c Dr. 10.00
To Polaris Ltd. A/c 30.00
(Being reserves and P&L carried forward)
5. Transfer Share Capital to Polaris (in exchange for Polaris shares):
Share Capital A/c Dr. 80.00
To Polaris Ltd. A/c 80.00
(Being Aurora share capital transferred to Polaris)
6. Close Polaris Ltd. A/c to Shareholders by allotment of Polaris shares:
Polaris Ltd. A/c Dr. 155.00
To Equity Shareholders A/c (Aurora) 120.00
To Equity Shareholders A/c (Aurora - carried items included) 35.00
(Or directly: Polaris Ltd. A/c cleared by transferring consideration by way of shares issued)
Examiners accept a streamlined presentation that shows assets and liabilities being
transferred and share capital carried forward — key is to show the swap and carry-forward
of reserves.
(ii) In the books of Boreal Ltd.
3. Transfer assets & liabilities to Polaris Ltd. A/c:
Polaris Ltd. A/c Dr. ₹105.00
To Land & Building A/c 35.00
To Plant & Machinery A/c 20.00
To Investments A/c 10.00
To Stock A/c 15.00
To Debtors A/c 25.00
To Cash & Bank A/c 5.00
(Being assets transferred to Polaris at book values)
4. Transfer liabilities:
Creditors A/c Dr. 20.00
Bills Payable A/c Dr. 5.00
To Polaris Ltd. A/c 25.00
(Being liabilities transferred to Polaris)
 5. Transfer reserves and profit/loss (note P&L is debit → treated as deduction carried
forward):
Polaris Ltd. A/c Dr. 5.00
To Profit & Loss A/c 5.00
(Being Boreal's debit P&L carried forward in Polaris)
6. Transfer share capital in exchange for Polaris shares issued:
Share Capital A/c Dr. 50.00
To Polaris Ltd. A/c 50.00
(Being Boreal share capital transferred to Polaris)
Step 3 — Journal entries in the books of Polaris Ltd. (Transferee/NewCo)
Polaris will record the assets and liabilities acquired and the issue of shares to transferor
shareholders.
4. Record assets taken over (at book values):
Land & Building A/c Dr. 95.00
Plant & Machinery A/c Dr. 60.00
Investments A/c Dr. 25.00
Stock A/c Dr. 35.00
Debtors A/c Dr. 45.00
Cash & Bank A/c Dr. 5.00
To Creditors A/c 45.00
To Bills Payable A/c 5.00
To Equity Share Capital A/c 170.00
(Being assets and outside liabilities taken over and equity capital issued to transferors)
Explanation of equity credit: Polaris issues 17,00,000 shares of ₹10 each = ₹170 lakhs to
settle the transfer.
5. Carry forward reserves and P&L (as part of opening balances):
General Reserve A/c Dr. 30.00
To Equity (Reserves carried to balance sheet) 30.00

Profit & Loss A/c (Net carried forward) Dr. 5.00

To Equity (P&L carried to balance sheet) 5.00
(Reserves and P&L may be shown on the liabilities side of opening balance sheet under
‘Reserves & Surplus’)
Step 4 — Proforma Opening Balance Sheet of Polaris Ltd. (after amalgamation)
(₹ in lakhs)
Liabilities
Particulars Amount
Equity Share Capital (17,00,000 × ₹10) 170.00
Reserves & Surplus (Carried from transferors) 30.00
Profit & Loss A/c (Net carried) 5.00
Creditors 45.00
Bills Payable 5.00
Total 255.00
Assets
Particulars Amount
Land & Building 95.00
Plant & 60.00
Machinery
Investments 25.00
 Particulars Amount
Stock 35.00
Debtors 45.00
Cash & Bank 5.00
Total 255.00
Key points (exam checklist): - Under pooling, assets and liabilities are combined at book
values. - Reserves and accumulated profits/losses are carried forward to the transferee. - No
goodwill is recognized and no cash consideration is paid. - Share capital of transferor
companies is replaced by the share capital of the transferee in agreed exchange ratios.

A. Purchase Method — Compact Journal Entries (Transferor & Transferee)

Transferor (e.g., Brighton Ltd.)
5. Transfer assets to Realisation A/c
Realisation A/c Dr. (Total assets)
To Various Asset A/cs
6. Transfer liabilities to Realisation A/c
Various Liability A/cs Dr.
To Realisation A/c
6. Record Purchase Consideration receivable from Purchaser
Purchaser A/c (Transferee) Dr. (Purchase Consideration)
To Realisation A/c
7. Record receipt of consideration (shares / cash / debentures)
Shares in Purchaser A/c Dr. (if any)
Cash/Bank A/c Dr.
To Purchaser A/c
7. Transfer reserves & P&L to Equity Shareholders A/c; transfer Share Capital to Equity
Shareholders A/c; settle Equity Shareholders A/c by remitting consideration.
Transferee (e.g., Horizon Ltd.)
6. Record assets acquired and liabilities assumed
Various Asset A/cs Dr.
To Various Liability A/cs
To Purchaser Clearing / Business Purchase A/c
7. Recognise goodwill if paid
Goodwill A/c Dr.
To Purchaser / Liquidator A/c
7. Settle consideration by issuing shares / debentures / cash
Purchaser / Liquidator A/c Dr.
To Equity Share Capital A/c
To Preference Share Capital A/c
To Cash/Bank A/c
Key ledger outlines (Transferor) - Realisation A/c — shows assets (Dr) and liabilities +
purchaser (Cr); profit/loss moved to Equity Shareholders. - Purchaser A/c — Dr for
consideration receivable; Cr when settled by shares/cash. - Equity Shareholders A/c —
collects capital, reserves, realisation profits; settled by payment (shares/cash).

B. Pooling of Interests — Compact Journal Entries (Transferors & Transferee)

Transferors (Aurora & Boreal)
7. Transfer assets to NewCo A/c (Polaris Ltd.)
Polaris Ltd. A/c Dr.
To Assets A/cs
 8. Transfer liabilities to Polaris Ltd. A/c
Liabilities A/cs Dr.
To Polaris Ltd. A/c
8. Transfer reserves & P&L (carried forward)
Reserves A/c / P&L A/c Dr. (or Cr.)
To Polaris Ltd. A/c
8. Transfer Share Capital to Polaris Ltd. A/c
Share Capital A/c Dr.
To Polaris Ltd. A/c
8. Polaris shares issued to transferors — Polaris Ltd. A/c cleared by issuing equity
Polaris Ltd. A/c Dr.
To Equity Share Capital A/c (Polaris) — value issued
Transferee (Polaris Ltd.)
8. Record assets acquired and liabilities assumed (at book values)
Assets A/cs Dr.
To Liabilities A/cs
To Equity Share Capital A/c (Polaris)
9. Carry forward reserves & P&L to opening balances (Reserves & Surplus)
Reserves & Surplus (Balancing entries depending on approach)
Key differences (one-line): - Pooling: no goodwill; reserves & capital carried forward;
shares swapped at agreed ratio. - Purchase: purchaser records goodwill (if any); transferor
realises assets/liabilities and distributes consideration; purchaser shows new assets and
considers cost.