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

Ishaan Ltd takes over Jai Ltd. Jai's shareholders receive equity shares of Ishaan, but only 80% of Jai's equity shareholders (by value) become shareholders of Ishaan; the rest are paid cash. All other merger conditions are met. Which statement is correct under AS 14?

It is an amalgamation in the nature of purchase, so the purchase method applies. AS 14 requires at least 90% of the transferor's equity shareholders to become shareholders of the transferee for a merger, and with only 80% that condition fails.

  1. AIt is a merger since other conditions are satisfied, so pooling applies
  2. BIt is a purchase because the 90% shareholding condition fails, so the purchase method appliesCorrect
  3. CIt is a merger because cash may be paid to dissenting holders under any proportion
  4. DIt is a purchase, but pooling may still be chosen by the transferee

Explanation

AS 14 requires that equity shareholders holding at least 90% of face value of the transferor's equity become equity shareholders of the transferee. With only 80%, one merger condition fails, so the amalgamation is in the nature of purchase and must be accounted for by the purchase method. Pooling is not a free choice.

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