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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Nair Ltd has 60,000 equity shares of ₹10 each. Pillai Ltd absorbs it in an amalgamation in the nature of purchase. The terms are: 3 equity shares of ₹10 each of Pillai Ltd, whose fair value at the date of issue is ₹18 per share, for every 2 shares held in Nair Ltd, plus ₹5 in cash for every share held in Nair Ltd. What is the purchase consideration?

The purchase consideration is ₹19,20,000. Pillai Ltd issues 90,000 shares, which at fair value of ₹18 each amount to ₹16,20,000, and pays cash of ₹5 on 60,000 shares, which is ₹3,00,000. AS 14 counts the fair value of shares and cash together as consideration.

  1. A₹12,00,000
  2. B₹13,80,000
  3. C₹16,20,000
  4. D₹19,20,000Correct

Explanation

Shares issued = 60,000 × 3/2 = 90,000 shares. At fair value ₹18 this is ₹16,20,000. Cash = 60,000 × ₹5 = ₹3,00,000. Total consideration = ₹19,20,000. The figure ₹12,00,000 uses face value (9,00,000 + 3,00,000), while ₹16,20,000 omits the cash component.

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