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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Vindhya Ltd already holds equity shares of face value ₹2,00,000 in Satpura Ltd, whose total equity share capital is ₹10,00,000. Vindhya Ltd proposes to amalgamate Satpura Ltd. Equity shareholders holding shares of face value ₹7,00,000 of Satpura Ltd will become equity shareholders of Vindhya Ltd. All other conditions for a merger are assumed to be satisfied. How would the amalgamation be classified under AS 14?

It is an amalgamation in the nature of purchase. For a merger, holders of at least 90% of the transferor's equity, excluding shares the transferee already holds, must become transferee shareholders. Here ₹7,00,000 of the remaining ₹8,00,000 is only 87.5%, so the condition fails.

  1. AIn the nature of merger, because 70% of the total equity of Satpura Ltd moves to Vindhya Ltd
  2. BIn the nature of merger, because Vindhya Ltd already holds a controlling interest
  3. CIn the nature of purchase, because only 87.5% of the equity shares not held by Vindhya Ltd become its shareholders, which is below 90%Correct
  4. DIn the nature of purchase, because Vindhya Ltd already holds shares in Satpura Ltd, which is not allowed in a merger

Explanation

The 90% test for merger excludes equity shares already held by the transferee. Remaining shares = 10,00,000 − 2,00,000 = ₹8,00,000. Shares whose holders become shareholders of Vindhya Ltd = ₹7,00,000, which is 7,00,000 ÷ 8,00,000 = 87.5%. Since this is below 90%, the merger condition fails and it is an amalgamation in the nature of purchase. Existing holding by the transferee does not by itself bar a merger.

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