Skip to content

CA Intermediate · Advanced Accounting · Amalgamation of Companies

Zenith Ltd holds equity shares of ₹1,00,000 face value in Orbit Ltd, whose total equity share capital is ₹10,00,000. Orbit Ltd amalgamates into Zenith Ltd. Holders of equity shares of ₹8,00,000 face value in Orbit Ltd become equity shareholders of Zenith Ltd. The holders of the remaining ₹1,00,000 face value dissent and are paid in cash. All other conditions for a merger are met. How should the amalgamation be classified under AS 14?

It is an amalgamation in the nature of purchase. The 90% test excludes shares already held by the transferee, so the base is ₹9,00,000. Only ₹8,00,000 of that becomes Zenith equity, about 88.9%, which is below the required 90%, so the merger condition fails.

  1. AAmalgamation in the nature of purchase, since only about 88.9% of the relevant equity shares become shares of Zenith Ltd, which is below 90%Correct
  2. BAmalgamation in the nature of merger, since 80% of the equity shares are exchanged, which exceeds 75%
  3. CAmalgamation in the nature of merger, since the 10% already held by Zenith Ltd is added to the 80% to make 90%
  4. DAmalgamation in the nature of merger, since dissenting shareholders are ignored in the test

Explanation

The 90% test applies to equity shares of the transferor, excluding those already held by the transferee. The base is ₹10,00,000 − ₹1,00,000 = ₹9,00,000. Shares of ₹8,00,000 face value become Zenith shares, which is 8/9 ≈ 88.9% and below 90%. So the amalgamation is in the nature of purchase. Adding the shares already held to the 80% is wrong because those shares are excluded from the base.

Did you get it right without looking?

One question tells you little. A timed set on Amalgamation of Companies shows your real accuracy, how long you take and where you lose marks.

Practise Amalgamation of CompaniesFree diagnostic mock

More Amalgamation of Companies questions