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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Dhruv Ltd absorbs Esha Ltd in an amalgamation in the nature of purchase. Under the scheme, Dhruv issues equity shares worth ₹10,00,000 and pays ₹2,00,000 in cash to Esha's equity shareholders. Dhruv also directly repays Esha's debenture holders ₹4,00,000 and pays ₹50,000 of its own legal costs of the amalgamation. What is the purchase consideration as defined in AS 14?

The purchase consideration is ₹12,00,000. AS 14 counts only what the transferee gives to the transferor's shareholders, being shares worth ₹10,00,000 plus cash of ₹2,00,000. Repaying debenture holders discharges a liability taken over, and the transferee's own legal costs are expenses, so neither is included.

  1. A₹12,00,000Correct
  2. B₹16,00,000
  3. C₹12,50,000
  4. D₹10,00,000

Explanation

Purchase consideration under AS 14 is the aggregate of shares and other securities issued and payments made in the form of cash or other assets by the transferee to the shareholders of the transferor. That is ₹10,00,000 + ₹2,00,000 = ₹12,00,000. Settling the transferor's debentures is the discharge of a liability taken over, so ₹4,00,000 is excluded, which makes ₹16,00,000 wrong. Dhruv's own costs are expenses and are also excluded.

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