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Homework answers / question archive / In accounting for a merger under the purchase consideration method, a company is faced with a situation wherein it does not know how to transfer a capital reserve in the transferor’s books to the transferee’s books

In accounting for a merger under the purchase consideration method, a company is faced with a situation wherein it does not know how to transfer a capital reserve in the transferor’s books to the transferee’s books

Accounting

In accounting for a merger under the purchase consideration method, a company is faced with a situation wherein it does not know how to transfer a capital reserve in the transferor’s books to the transferee’s books. This can be achieved in the following way:

(a) The transferee can reduce the capital reserve from the purchase consideration.

(b) The transferee can allot shares to the extent of the capital reserve.

(c) The transferee can settle the capital reserve in cash.

(d) The transferee can allot shares to the shareholders of the transferor company to the extent of the capital reserve.

(e) The transferee can net off the capital reserve from other reserves appearing in its books.

(f) The transferee can reduce the book value of the assets taken over to the extent of the capital

reserve.

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