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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Alpha Ltd absorbs Beta Ltd in an amalgamation in the nature of purchase. As consideration it issues 40,000 equity shares of Rs 10 each, whose fair value is Rs 16 per share, and pays Rs 2,00,000 in cash to Beta Ltd's shareholders. What is the purchase consideration under AS 14?

The purchase consideration is Rs 8,40,000. Shares issued are valued at fair value, 40,000 x Rs 16 = Rs 6,40,000, and the cash paid of Rs 2,00,000 is added, because consideration covers all shares, securities and cash given to the transferor's shareholders.

  1. ARs 8,40,000Correct
  2. BRs 6,00,000
  3. CRs 6,40,000
  4. DRs 4,00,000

Explanation

Purchase consideration is the aggregate of shares and other securities issued and cash paid to the transferor's shareholders. Shares are taken at fair value: 40,000 x 16 = Rs 6,40,000. Adding cash of Rs 2,00,000 gives Rs 8,40,000. Rs 6,00,000 wrongly uses face value plus cash. Rs 6,40,000 omits the cash.

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