Skip to content

CA Intermediate · Advanced Accounting · Amalgamation of Companies

Ganga Ltd is amalgamated with Hooghly Ltd in the nature of purchase. Ganga Ltd has 60,000 equity shares of ₹10 each. Hooghly Ltd issues 4 equity shares of ₹10 each (fair value ₹15) for every 5 shares held, and pays ₹80,000 in cash. Net assets of Ganga Ltd at book values taken over are ₹9,00,000, which include a statutory reserve of ₹1,00,000 that must be maintained in Hooghly Ltd's books. Which treatment is correct?

Capital reserve is ₹1,00,000 because purchase consideration of ₹8,00,000 (48,000 shares at ₹15 plus ₹80,000 cash) is below net assets of ₹9,00,000. The statutory reserve is also recreated by crediting it and debiting Amalgamation Adjustment Reserve by ₹1,00,000.

  1. ACapital reserve ₹1,00,000; debit Amalgamation Adjustment Reserve ₹1,00,000 against the statutory reserve creditCorrect
  2. BCapital reserve ₹1,00,000; no Amalgamation Adjustment Reserve
  3. CGoodwill ₹1,00,000; debit Amalgamation Adjustment Reserve ₹1,00,000
  4. DCapital reserve ₹2,00,000; debit Amalgamation Adjustment Reserve ₹1,00,000

Explanation

Shares issued = 60,000 × 4/5 = 48,000; value = 48,000 × ₹15 = ₹7,20,000. Purchase consideration = 7,20,000 + 80,000 = ₹8,00,000. Net assets ₹9,00,000 exceed this by ₹1,00,000, so capital reserve is ₹1,00,000. Since the statutory reserve of ₹1,00,000 is to be kept, it is credited and Amalgamation Adjustment Reserve is debited by the same amount, without affecting the capital reserve.

Did you get it right without looking?

One question tells you little. A timed set on Amalgamation of Companies shows your real accuracy, how long you take and where you lose marks.

Practise Amalgamation of CompaniesFree diagnostic mock

More Amalgamation of Companies questions