Accounting for Amalgamation and Mergers: AS 14 vs. Ind AS 103 

Introduction

Mergers, acquisitions and amalgamations have been central to corporate strategy, creating scale, synergies and market power. For the accounting profession, these transactions present complex measurement, recognition and disclosure challenges. India’s traditional framework—AS 14 “Accounting for Amalgamations” issued by the ICAI—articulated a dual-path approach (amalgamation in the nature of merger or purchase). The adoption of Indian Accounting Standards (Ind AS) aligned with IFRS introduced Ind AS 103 “Business Combinations”, which shifts emphasis to the acquisition method, fair-value measurement and detailed guidance on goodwill and contingent consideration. This article examines the fundamental accounting concepts embedded in AS 14, contrasts them with Ind AS 103, analyses practical complexities and illustrates with Indian case studies (HDFC Ltd.–HDFC Bank; Tata Steel–Bhushan Steel; ONGC–HPCL). The discussion aims at readers who are qualified chartered accountants and seeks to combine conceptual rigour with actionable guidance.

Fundamental concepts in AS 14: definitions and the dual-method approach

AS 14 differentiates between two broad types of amalgamation: (a) amalgamation in the nature of merger; and (b) amalgamation in the nature of purchase. The classification is determinative of measurement and disclosure:

• Amalgamation in the nature of merger (often described as “pooling of interests”) requires that the transferor company’s assets and liabilities be recorded at the carrying amounts in the transferee’s books, and reserves of the transferor (excluding revaluation reserves in some circumstances) be carried forward. The consideration is generally in the form of equity shares issued by the transferee, and the transaction is treated as a continuation of the historical book values.
• Amalgamation in the nature of purchase follows the purchase method, where the transferee recognizes assets and liabilities of the transferor at their fair values on the date of amalgamation; any excess of consideration over the fair value of net identifiable assets is recorded as goodwill, while a bargain purchase gain is recognized in the profit and loss where the net identifiable assets exceed consideration.

AS 14 embeds fundamental accounting principles: economic substance over legal form (the nature of merger requires substance of pooling to be demonstrated), conservatism (through the purchase method’s recognition of fair value adjustments and goodwill), and reliability (requiring adequate evidence for classification as a merger). The standard sets threshold criteria for merger classification—such as continuity of shareholders, continuity of business, and transfers of shares in consideration—that demand professional judgement and documentary evidence. (Source: AS 14 text). citeturn0search0

Ind AS 103: the acquisition method and its conceptual shift

Ind AS 103, aligned closely with IFRS 3, adopts the acquisition method for all business combinations (subject to limited carve-outs for combinations under common control in Indian practice). The standard requires:

• Identification of the acquirer — an entity that obtains control of the acquiree.
• Determination of the acquisition date — the date when the acquirer obtains control.
• Recognition and measurement of identifiable assets acquired, liabilities assumed and any non-controlling interest — generally at fair value at the acquisition date.
• Measurement of goodwill as the excess of consideration transferred plus the recognised amount of any non-controlling interest and the fair value of any previously held equity interest, over the net identifiable assets recognized.
• Subsequent accounting for contingent consideration, acquisition-related costs, restructuring costs and measurement-period adjustments under strict rules.

The conceptual shift is material: Ind AS 103 centralises fair value measurement and the recognition of all identifiable intangible assets (including brand, technology, customer relationships) if separately identifiable and measurable, whereas AS 14’s ‘merger vs purchase’ dichotomy permitted the continuation of historical carrying values in many amalgamations classified as mergers. Ind AS 103 therefore tends to increase the measurement complexity and the volatility in post-combination profits (amortisation / impairment of identified intangibles, goodwill impairment reviews), but also increases relevance by recognising current economic values. (Source: Ind AS 103 educational material). -cite-turn0search1-

Comparative analysis: recognition, measurement and presentation

Recognition and measurement

The most visible difference lies in initial measurement of assets and liabilities:

• AS 14 (Merger): Carryforward of book values, limited recognition of reserves and no immediate goodwill on consolidation.
• AS 14 (Purchase): Fair valuation like Ind AS, but AS 14’s purchase rules historically allowed differences in treatment (for example, transferor reserves treatment).
• Ind AS 103: Uniform application of the acquisition method — fair value measurement of identifiable assets and liabilities; recognition of full goodwill or partial goodwill depending on policy for non-controlling interests.

Goodwill and subsequent measurement

Under AS 14, goodwill arising on purchase is typically amortised (AS 26 / AS guidance historically required systematic amortisation), whereas Ind AS 103 requires that goodwill not be amortised but tested annually for impairment under Ind AS 36. This change has significant earnings-profile and balance-sheet implications: Ind AS practice defers expense recognition until impairment, while amortisation under AS 14 (older practice) systematically allocated the cost over time. The move to impairment-only accounting tends to preserve earnings in early years but can give rise to large one-off impairment losses when recoverable amounts fall below carrying values.

Non-controlling interests and previously held equity interests

Ind AS 103 provides detailed rules for measuring non-controlling interests (at fair value or at the proportionate share of net identifiable assets). It also prescribes accounting for remeasurement of previously held equity interests in step acquisitions. AS 14 lacks such detailed guidance, reflecting its narrower focus. The consequence is greater disclosure and measurement complexity under Ind AS 103, but also clearer economic presentation for users.

Illustrations: Practice and complexity using Indian case studies

HDFC Ltd. merger into HDFC Bank — a composite amalgamation (illustrative implications)

The composite scheme under which HDFC Ltd. (a housing finance company) merged into HDFC Bank in 2023 is an archetypal Indian scheme of arrangement with multi-jurisdictional regulatory approvals and complex valuation mechanics. The scheme involved share swaps, inter-company transfers and regulatory clearances from RBI, SEBI and NCLT. From an accounting standpoint the key issues were: identification of the combining entities under applicable standards, measurement of consideration (equity shares issued by HDFC Bank), treatment of statutory reserves held by the transferor (whether to carry forward or recognise through P&L) and post-combination goodwill or adjustments. The transaction was effected as a statutory amalgamation under the composite scheme and required careful mapping between scheme mechanics and Ind AS/AS accounting; HDFC Bank’s public disclosures set out the basis of accounting and the way assets, liabilities and reserves were dealt with post-combination. The HDFC transaction illustrates challenges in aligning legal scheme terms with accounting recognition—especially where regulatory capital, prudential norms and tax consequences influence commercial structuring. -cite-turn0search6–turn0search10*-

Tata Steel – Bhushan Steel (acquisition via IBC) — fair value and subsequent consolidation

Tata Steel’s acquisition of Bhushan Steel (2018) through the Insolvency and Bankruptcy Code (IBC) represents an acquisition where valuation of net assets, assumed liabilities and purchase consideration (including settlement with financial creditors) were critical. Tata Steel consolidated Bhushan Steel from the acquisition date. The practical accounting issues included determining the acquisition date, measuring consideration (including assumed debt settlements), identifying separately recognisable intangible assets, and accounting for scarce or complex assets such as mining rights, plant&equipment valuation and onerous contracts. Under Ind AS measurement at fair value and subsequent impairment testing of goodwill applied; disclosure of acquisition-related costs and post-acquisition performance was required in the consolidated financial statements. The case underscores the role of valuation experts and the need for robust due diligence in distressed-asset acquisitions. -cite-turn1search3-turn1search14-

ONGC acquisition of HPCL — government-to-government stake sale (practical accounting considerations)

The acquisition by ONGC of the government’s 51.11% stake in HPCL (2018) is another instructive Indian example. While the transaction resulted in ONGC becoming the majority shareholder and HPCL a consolidated subsidiary, the transaction mechanics and public sector context presented specific issues: valuation of government equity, accounting for contingent liabilities and employee benefit obligations arising from legacy service terms, and the treatment of downstream regulatory assets/liabilities. The acquisition emphasises the measurement and disclosure requirements under Ind AS 103 when a strategic investor acquires control of a large, regulated entity. -cite-turn0search7-

Complex and judgmental areas: goodwill, bargain purchase, contingent consideration and restructuring costs

Goodwill — identification and measurement

Under Ind AS 103, goodwill is measured as the excess of consideration over the fair value of net identifiable assets. Goodwill reflects expected synergies, assembled workforce (if not separately identifiable) and future growth prospects. Its recognition requires robust valuation of identifiable intangibles — customer relationships, brands, technology — and careful documentation of valuation assumptions (discount rates, cash flow projections, useful lives). Goodwill is not amortised but tested for impairment annually; this requires macro- and micro-level forecasts and the allocation of goodwill to cash-generating units (CGUs).

Bargain purchase

Occasionally an acquirer obtains net identifiable assets at a bargain (consideration less than fair value). Ind AS 103 requires that the acquirer reassess measurements and, failing an error, recognise a gain in profit or loss immediately. This accounting presents reputational and audit challenges—auditors must be satisfied that fair values were measured correctly and that the bargain reflects economic reality (for example, distress sale).

Contingent consideration

Ind AS 103 requires contingent consideration to be measured at fair value at acquisition and subsequently classified (liability or equity) depending on its characteristics. Changes in fair value of contingent liabilities classified as liabilities are recognised in profit or loss, creating post-acquisition volatility. Practical issues include estimating probabilities, revenue or EBITDA-based earn-outs, and modelling market/non-market variables.

Restructuring costs and acquisition-related expenses

Ind AS 103 restricts recognition of acquisition-related restructuring costs at the acquisition date only if the acquirer has an obligation (constructive or legal) that existed at the acquisition date; otherwise, restructuring costs arising post-acquisition are recognised by the acquirer following other standards. Acquisition-related costs (e.g., advisory fees) are expensed as incurred, not capitalised into consideration—this differs from some historical approaches and is an important cash-flow vs accounting distinction.

Reverse acquisitions and common-control combinations

Ind AS 103 does not apply to combinations under common control; such transactions require separate guidance (often based on national GAAP or carve-outs). Additionally, reverse acquisitions (where the legal acquirer is not the accounting acquirer) require identification of the accounting acquirer and measurement accordingly — a frequent pitfall in cross-border or group reorganisations.

Transition and disclosure considerations

Transitioning from AS 14 to Ind AS 103 requires companies to revisit historical amalgamation accounting policies and possibly reassess prior transactions when comparative periods are restated. Ind AS 103 entails richer disclosure requirements — acquisition-date fair values, reconciliation of carrying amounts to fair values, the amount of goodwill, and explanations of measurement period adjustments. Auditors and preparers must document valuation methodologies, the competence of valuation experts and sensitivity analyses for key assumptions.

Practical guidance for practitioners

• Early identification of the acquirer and acquisition date is essential—capture board minutes, scheme orders and regulatory filings that establish control.
• Engage valuation specialists early for fair-value measurement of intangible assets and complex PPE items; document assumptions and data sources.
• Evaluate whether a transaction qualifies as a merger under AS 14 (if AS continues to apply) — document continuity of ownership, business and management.
• For contingent consideration, adopt robust probability-weighted scenarios and maintain post-acquisition monitoring processes.
• For goodwill impairment testing, maintain clear CGU definitions and forecast models aligned to internal budgets; perform sensitivity tests for discount rates and growth assumptions.

Conclusion

Accounting for amalgamations and mergers in India has evolved from the dual-path paradigm of AS 14 to a principle-based acquisition method under Ind AS 103. The shift emphasises fair value measurement, economic substance, and enhanced disclosure, but brings greater measurement complexity and judgement. Indian mega-transactions—such as the HDFC–HDFC Bank composite merger, Tata Steel’s acquisition of Bhushan Steel and ONGC’s acquisition of HPCL—illustrate how regulatory structures, public policy and corporate strategy intersect with accounting choices. For the chartered accountant advising or auditing such transactions, the focus must be on rigorous evidence, clear documentation of judgemental estimates, and transparent disclosures that bridge commercial objectives and faithful representation in financial statements.

Selected references and authoritative materials

• ICAI, Accounting Standard (AS) 14: Accounting for Amalgamations. (ICAI guidance and text). -cite-turn0search0-
• ICAI, Educational Material on Ind AS 103: Business Combinations. -cite-turn0search1-
•  HDFC Bank public disclosures and composite scheme documents (scheme of amalgamation). -cite-turn0search6-turn0search10-
• Tata Steel press releases on acquisition of Bhushan Steel (2018). -cite-turn1search3-turn1search14-
• Press Information Bureau (Government of India) release on ONGC acquisition of HPCL (2018). -cite-turn0search7-