Skip to content

CS Professional · Corporate Restructuring, Valuation and Insolvency · Accounting in Corporate Restructuring: Concept and Accounting Treatment

Dev Ltd merges into Esha Ltd, both under common control. Dev's net assets have a book value of Rs 80 lakh and a fair value of Rs 110 lakh. Esha issues shares with a face value of Rs 60 lakh to Dev's shareholders. Under Appendix C, what is the amount transferred to capital reserve or reserves arising from the difference?

The difference is Rs 20 lakh. Under Appendix C, Dev's net assets are taken at book value of Rs 80 lakh, and the Rs 60 lakh of share capital issued is deducted. The excess of Rs 20 lakh goes to capital reserve, and fair value is ignored.

  1. ARs 20 lakh difference, shown as capital reserve with net assets at book valueCorrect
  2. BRs 50 lakh difference, based on fair value
  3. CRs 30 lakh goodwill recognised on fair value
  4. DNo difference arises because shares are issued at fair value

Explanation

Under pooling, assets are recorded at book value of Rs 80 lakh. The consideration is Rs 60 lakh of share capital. The difference is 80 - 60 = Rs 20 lakh, which is treated as capital reserve. Using fair value Rs 110 lakh would give Rs 50 lakh, which is wrong under pooling.

Did you get it right without looking?

One question tells you little. A timed set on Accounting in Corporate Restructuring: Concept and Accounting Treatment shows your real accuracy, how long you take and where you lose marks.

Practise Accounting in Corporate Restructuring: Concept and Accounting TreatmentFree diagnostic mock

More Accounting in Corporate Restructuring: Concept and Accounting Treatment questions