Skip to content

CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Meridian Ltd absorbs Orion Ltd. Meridian Ltd issues 40,000 equity shares of ₹10 each, issue price ₹12, to Orion Ltd's shareholders and pays them ₹2,00,000 in cash. In addition, Meridian Ltd pays ₹1,00,000 directly to Orion Ltd's debenture holders in full settlement and bears ₹30,000 of liquidation expenses of Orion Ltd. What is the purchase consideration as defined in AS 14?

The purchase consideration is ₹6,80,000. It consists of shares valued at ₹12 each for 40,000 shares, amounting to ₹4,80,000, plus ₹2,00,000 cash paid to shareholders. Payments to debenture holders and liquidation expenses are not paid to the transferor's shareholders, so AS 14 excludes them from the consideration.

  1. A₹6,80,000Correct
  2. B₹7,10,000
  3. C₹7,80,000
  4. D₹8,10,000

Explanation

AS 14 defines consideration as shares and other securities issued plus cash or other assets paid by the transferee to the shareholders of the transferor. Shares: 40,000 × ₹12 = ₹4,80,000, plus cash ₹2,00,000 = ₹6,80,000. Payment to debenture holders (₹1,00,000) is settlement of a liability, and liquidation expenses (₹30,000) are not paid to shareholders, so both are excluded. Including them gives the wrong figures of ₹7,10,000, ₹7,80,000 or ₹8,10,000.

Did you get it right without looking?

One question tells you little. A timed set on AS 14 Accounting for Amalgamations shows your real accuracy, how long you take and where you lose marks.

Practise AS 14 Accounting for AmalgamationsFree diagnostic mock

More AS 14 Accounting for Amalgamations questions