Wow Ltd. agreed to takeover Wonder Ltd. on 1st April, 2024. The terms and conditions of takeover were as follows: (i) Wow Ltd. issued 56,000 equity…

CA Intermediate · Advanced Accounting · MTP · September 2024
Wow Ltd. agreed to takeover Wonder Ltd. on 1st April, 2024. The terms and conditions of takeover were as follows: (i) Wow Ltd. issued 56,000 equity shares of 100 each at a premium of 15 per share to the equity shareholders of Wonder Ltd. (ii) Cash payment of 39,000 was made to equity shareholders of Wonder Ltd. (iii) 24,000 fully paid preference shares of 50 each issued at par to discharge the preference shareholders of Wonder Ltd. (iv) The 8% Debentures of Wonder Ltd. (78, 000) converted into equivalent value of 9% debentures in Wow Ltd. (v) The actual cost of liquidation of Wonder Ltd. was - 23,000. Liquidation cost is to be reimbursed by Wow Ltd. to the extent of 15,000. You are required to: (1) Calculate the amount of purchase consideration as per the provisions of AS 14 and (2) Pass Journal Entry relating to discharge of purchase consideration in books of Wow Ltd.

Suggested Answer and Working Notes:

As per AS 14, ‘Accounting for Amalgamations' consideration for the amalgamation means the aggregate of shares and other securities issued and payment made in form of cash or other assets by the transferee company to the shareholders of the transferor company. (i) Computation of Purchase Consideration ₹ (a) Preference Shares:50 per share 24,000 Preference shares 12,00,000 (b) Cash 39,000 (c) Equity shares: 56,000 equity shares in Wow Ltd. @115 64,40,000 76,79,000 (ii) Journal entry Particulars ₹ Liquidator of Wonder Ltd. Dr. 76,79,000 To Cash 39,000 To Preference Share Capital A/c 12,00,000 To Equity Share Capital A/c 56,00,000 To Securities Premium A/c [56,000 x 15 (115-100)] 8,40,000

Topics: AS 14

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