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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Mehta Ltd takes over Joshi Ltd. Mehta Ltd issues 40,000 equity shares of Rs 10 each, whose fair value is Rs 15 per share, and pays Rs 2,00,000 in cash to Joshi Ltd's shareholders. Mehta Ltd also agrees to pay off Joshi Ltd's bank loan of Rs 1,00,000 directly to the bank. As per AS 14, what is the purchase consideration?

The purchase consideration is Rs 8,00,000. It consists of shares valued at fair value, 40,000 x Rs 15 = Rs 6,00,000, plus Rs 2,00,000 cash paid to shareholders. Payment of the transferor's bank loan is discharge of a liability taken over and is not part of consideration.

  1. ARs 8,00,000Correct
  2. BRs 6,00,000
  3. CRs 9,00,000
  4. DRs 7,00,000

Explanation

Consideration covers shares and cash paid to shareholders, with shares valued at fair value: 40,000 x 15 = 6,00,000, plus 2,00,000 cash, giving Rs 8,00,000. The bank loan is a liability taken over, not paid to shareholders, so it is excluded. Rs 6,00,000 results from valuing the shares at face value (4,00,000) plus cash.

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