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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Vishwa Textiles Ltd is absorbing Sagar Fabrics Ltd. The board wants the amalgamation to be accounted for as an 'amalgamation in the nature of merger' under AS 14. Which of the following conditions must be satisfied among others for this classification?

An amalgamation qualifies as a merger under AS 14 only if, among other conditions, shareholders holding at least 90% of the face value of the transferor's equity shares, excluding those held by the transferee or its nominees, become equity shareholders of the transferee company.

  1. AShareholders holding at least 75% of the face value of the transferor's equity shares become equity shareholders of the transferee
  2. BShareholders holding at least 90% of the face value of the transferor's equity shares (other than those already held by the transferee or its nominees) become equity shareholders of the transfereeCorrect
  3. CAll the equity shareholders of the transferor, without exception, must receive only cash
  4. DThe transferee must record the transferor's assets at fair values and recognise goodwill

Explanation

AS 14 requires, among other conditions, that shareholders holding at least 90% of the face value of the transferor's equity shares (excluding shares held by the transferee or its nominees) become shareholders of the transferee. The 75% figure is the special resolution threshold and is not the AS 14 test. Fair-value recording and goodwill belong to the purchase method, and a merger needs consideration discharged wholly by equity shares, not cash.

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