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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Narmada Ltd is absorbed by Tapti Ltd. Narmada's shareholders are settled as follows: (i) 4,00,000 of 10% preference share capital is discharged by issuing Tapti's preference shares of equal face value at a 5% premium; (ii) Narmada's 50,000 equity shares are discharged by issuing 3 equity shares of ₹10 each (valued at ₹12 each) for every 2 shares held, plus ₹2 in cash per equity share held. What is the purchase consideration?

Purchase consideration is the total of shares and cash given to the transferor's shareholders. Preference shares at a 5% premium are ₹4,20,000. Equity shares of 75,000 at ₹12 are ₹9,00,000. Cash of ₹2 on 50,000 shares is ₹1,00,000. The total is ₹14,20,000.

  1. A₹14,20,000Correct
  2. B₹12,50,000
  3. C₹13,20,000
  4. D₹12,70,000

Explanation

Preference: 4,00,000 × 1.05 = ₹4,20,000. Equity: 50,000 × 3/2 = 75,000 shares × ₹12 = ₹9,00,000. Cash: 50,000 × ₹2 = ₹1,00,000. Total = ₹14,20,000. Option D values the equity shares at face value of ₹10, which ignores the premium, and option C omits the cash.

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