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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Alpha Ltd takes over Beta Ltd, which has 50,000 equity shares of ₹10 each. Alpha Ltd agrees to give 3 of its equity shares of ₹10 each (fair value ₹15 per share) for every 2 shares held in Beta Ltd, plus ₹4 in cash for each Beta Ltd share. What is the purchase consideration?

The purchase consideration is ₹13,25,000. Alpha issues 75,000 shares (50,000 × 3/2) worth ₹15 each, which is ₹11,25,000, and pays cash of ₹4 on each of the 50,000 Beta shares, which is ₹2,00,000. Consideration includes shares at fair value plus cash paid.

  1. A₹13,25,000Correct
  2. B₹9,50,000
  3. C₹11,25,000
  4. D₹14,25,000

Explanation

Shares issued = 50,000 × 3/2 = 75,000, valued at fair value ₹15 = ₹11,25,000. Cash = 50,000 × ₹4 = ₹2,00,000. Total = ₹13,25,000. Using face value gives ₹9,50,000, which is wrong because consideration is measured at fair value. Computing cash on the new shares (75,000 × ₹4) gives ₹14,25,000, which is also wrong.

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