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CMA Final · Corporate Financial Reporting · Accounting for Business Combination and Restructuring

Pune Ltd merges with its fellow subsidiary Nashik Ltd in a common control combination. Pune Ltd issues 40,000 equity shares of Rs 10 nominal value (market price Rs 85 per share) to Nashik Ltd's shareholders. Nashik Ltd's share capital is Rs 5,50,000 and it has no other consideration. What amount is transferred to capital reserve in Pune Ltd's books?

Rs 1,50,000 is credited to capital reserve. Shares issued are recorded at nominal value of Rs 4,00,000, not market price. The difference from the transferor's share capital of Rs 5,50,000 is transferred to capital reserve and shown separately with disclosure of its nature.

  1. ARs 1,50,000 creditCorrect
  2. BRs 1,50,000 debit
  3. CRs 29,50,000 credit
  4. DRs 4,00,000 credit

Explanation

Securities are recorded at nominal value: 40,000 x Rs 10 = Rs 4,00,000. Transferor share capital is Rs 5,50,000. The difference of Rs 1,50,000, where the transferor's capital exceeds the shares issued, is transferred to capital reserve as a credit. Using the market price of Rs 85 is wrong because securities are at nominal value.

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