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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Sunrise Ltd is to absorb Moonlight Ltd. Moonlight Ltd has 50,000 equity shares of ₹10 each, of which Sunrise Ltd already holds 5,000 shares. All other conditions for an amalgamation in the nature of merger are met. What is the minimum face value of Moonlight Ltd's equity shares, held by persons other than Sunrise Ltd, that must be exchanged for Sunrise Ltd's equity shares so that the 90% condition is satisfied?

The minimum is ₹4,05,000. The 90% condition is applied to the transferor's equity shares excluding those already held by the transferee. That leaves 45,000 shares of ₹10 each, or ₹4,50,000, and 90% of this is ₹4,05,000. The transferee's own holding is excluded from the base.

  1. A₹4,05,000Correct
  2. B₹4,50,000
  3. C₹3,60,000
  4. D₹5,00,000

Explanation

The 90% test applies to equity shares of the transferor other than those already held by the transferee or its nominees. Shares held by others = 50,000 − 5,000 = 45,000, with face value ₹4,50,000. 90% of this is ₹4,05,000. Using 90% of the total 50,000 shares gives ₹4,50,000, which wrongly counts the transferee's own holding.

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