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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Konark Ltd is to absorb Mahanadi Ltd. Mahanadi Ltd has 1,00,000 equity shares, of which Konark Ltd already holds 10,000. All of Mahanadi's assets and liabilities will be taken over, and the other conditions for an amalgamation in the nature of merger are met except possibly the 90% test. What is the minimum number of Mahanadi's equity shares whose holders must become equity shareholders of Konark Ltd for the 90% condition to be satisfied?

At least 81,000 shares. AS 14 requires holders of 90% of the transferor's equity shares, excluding those already held by the transferee, to become shareholders of the transferee. Excluding the 10,000 held leaves 90,000, and 90% of that is 81,000.

  1. A90,000 shares
  2. B81,000 sharesCorrect
  3. C72,900 shares
  4. D10,000 shares

Explanation

The 90% test under AS 14 excludes equity shares of the transferor already held by the transferee or its nominees. Relevant shares = 1,00,000 - 10,000 = 90,000. 90% of 90,000 = 81,000. Using 90,000 wrongly applies 90% to the total of 1,00,000 without excluding the shares already held.

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