There are two main methods of accounting for amalgamation namely:
The pooling of Interest method
This method is applied in amalgamation in the nature of the merger. Under this method, the assets, reserves, liabilities of the transferor company are taken over by the transferee company at the existing carrying amount. The only adjustment is done to comply with the difference in accounting policies. Thus the difference of amount between the share capital of the transferor company and the share issued by transferee company is adjusted in reserves
This method is applied in amalgamation in the nature of the purchase. The assets and liabilities are either incorporated at their existing carrying value or the purchase consideration is allocated to each asset and liability on the basis of the fair value dated the amalgamation date.
No reserves other than the statutory reserves are incorporated in the financial statements of the transferee company.
Any positive difference between the purchase consideration and the net assets transferred is recorded as Goodwill while the shortfall is shown as capital reserve. The goodwill is normally amortized over a period of 5 years.