ABC limited agrees to issue 3 share of rupees 10 eachrupees 9 paid up ...
Calculation of Purchase Consideration
To calculate the purchase consideration, we need to follow the given steps:
Step 1: Calculate the number of transferor company shares required to be exchanged for 3 shares of ABC Limited.
3 shares of ABC Limited are to be issued for every 5 shares of the transferor company.
Number of transferor company shares required = (500000/10) x 5/3 = 83333.33
Step 2: Calculate the market value of the transferor company shares.
Market value of 1 share of transferor company = 8
Market value of 83333.33 shares of transferor company = 8 x 83333.33 = 666666.64
Step 3: Calculate the purchase consideration.
Purchase consideration = (Market value of transferor company shares / Number of shares of ABC Limited) x (Paid-up value of ABC Limited shares)
Purchase consideration = (666666.64 / 3) x 9 = 1999999.92
Therefore, the purchase consideration is rupees 1999999.92.
Explanation
ABC Limited has agreed to issue 3 shares of rupees 10 each, rupees 9 paid-up, at a market value of rupees 15 per share for every 5 shares in the transferor company. The transferor company has 500000 paid-up shares of rupees 10 each, with a market value of rupees 8 per share.
To calculate the purchase consideration, we need to determine the number of transferor company shares required to be exchanged for 3 shares of ABC Limited. By using the given formula, we get the number of transferor company shares required.
After that, we can calculate the market value of the transferor company shares by multiplying the market value per share with the number of shares required.
Finally, the purchase consideration can be calculated by using the formula, which includes the market value of transferor company shares, the number of shares of ABC Limited, and the paid-up value of ABC Limited shares.
In this way, we can calculate the purchase consideration for the given scenario.