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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Under an amalgamation in the nature of purchase, Narmada Ltd takes over Godavari Ltd. Narmada Ltd issues 50,000 equity shares of ₹10 each, fair value ₹14 per share, and pays ₹1,00,000 in cash to Godavari Ltd's shareholders. Narmada Ltd also agrees to bear Godavari Ltd's liquidation expenses of ₹40,000. What is the purchase consideration as per AS 14?

The purchase consideration is ₹8,00,000. It consists of shares issued at fair value (50,000 × ₹14 = ₹7,00,000) plus ₹1,00,000 cash paid to shareholders. Liquidation expenses of the transferor borne by the transferee are not part of the consideration paid to shareholders.

  1. A₹8,00,000Correct
  2. B₹8,40,000
  3. C₹6,00,000
  4. D₹7,00,000

Explanation

Purchase consideration is the aggregate of shares and other securities issued and cash paid to the transferor's shareholders. Shares: 50,000 × ₹14 = ₹7,00,000; add cash ₹1,00,000, giving ₹8,00,000. Liquidation expenses borne by the transferee are not paid to shareholders, so adding them (₹8,40,000) is wrong.

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