Skip to content

CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Nirmal Ltd takes over Prakash Ltd under the purchase method. The book value of Prakash's assets is ₹30,00,000, which includes preliminary expenses of ₹1,00,000 that are not taken over. Land with a book value of ₹6,00,000 is agreed at ₹8,00,000, and no other asset value changes. Prakash's liabilities of ₹8,00,000, including 12% debentures of ₹3,00,000, are all assumed. Prakash's 1,00,000 equity shares receive 1.5 Nirmal shares each. Each Nirmal share has a face value of ₹10 and is valued at ₹16. Equity shareholders also receive ₹2,00,000 in cash. What is the result of the amalgamation in Nirmal's books?

Goodwill of ₹3,00,000 arises. Net assets are ₹23,00,000: assets of ₹31,00,000 after excluding preliminary expenses and adding the ₹2,00,000 land revaluation, less liabilities of ₹8,00,000. The consideration is ₹24,00,000 in shares plus ₹2,00,000 cash, or ₹26,00,000, which exceeds net assets by ₹3,00,000.

  1. AGoodwill of ₹3,00,000Correct
  2. BGoodwill of ₹2,00,000
  3. CGoodwill of ₹5,00,000
  4. DCapital reserve of ₹3,00,000

Explanation

Assets taken over are 30,00,000 − 1,00,000 preliminary expenses + 2,00,000 revaluation = ₹31,00,000. Less liabilities of ₹8,00,000, net assets are ₹23,00,000. Consideration is 1,50,000 shares × ₹16 = ₹24,00,000 plus ₹2,00,000 cash = ₹26,00,000. Goodwill is 26 − 23 = ₹3,00,000. ₹2,00,000 results if the preliminary expenses are wrongly taken over as an asset, and ₹5,00,000 results if the land revaluation is ignored.

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