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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Sundaram Textiles Ltd absorbs Kaveri Fabrics Ltd. Kaveri has 30,000 equity shares. Sundaram agrees to issue 2 equity shares of ₹10 each (fair value ₹15 per share) for every 3 shares held in Kaveri, and to pay ₹2 in cash per share held in Kaveri. What is the purchase consideration under AS 14?

The purchase consideration is ₹3,60,000. Under AS 14 it is the total of shares and other forms of consideration paid to the transferor's shareholders, with shares valued at fair value. The 20,000 shares issued at ₹15 give ₹3,00,000, and cash of ₹2 on 30,000 shares adds ₹60,000.

  1. A₹3,60,000Correct
  2. B₹3,00,000
  3. C₹2,60,000
  4. D₹3,40,000

Explanation

Shares issued = 30,000 × 2/3 = 20,000. At fair value of ₹15 this is ₹3,00,000. Cash = 30,000 × ₹2 = ₹60,000. Total = ₹3,60,000. Using face value (₹2,00,000 + ₹60,000 = ₹2,60,000) is wrong because AS 14 takes consideration at fair value. Paying cash on only the 20,000 shares issued gives ₹3,40,000, which is also wrong.

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