Calculate the purchase consideration under net payment method from the following information Ramesh Ltd .taken over by Rakesh Ltd.the following information relating to Ramesh Ltd 4,000 Equity shares of Rs 100:-Rs 4,00,000reserve and surplus Rs,50,000.The both the companies agreed to following terms of absorption 1.Rakesh Ltd.gives 4shares for every 5 shares in Ramesh Ltd of Rs.100 each 2.Rakesh Ltd .paid Rs.per share for every share in Ramesh Ltd?

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Answer

Purchase Consideration Calculation for Ramesh Ltd Takeover

Given Information:
- Ramesh Ltd has 4,000 equity shares of Rs 100 each, which amounts to Rs 4,00,000.
- Ramesh Ltd has reserve and surplus of Rs 50,000.
- Rakesh Ltd agrees to acquire Ramesh Ltd with the following terms of absorption:
1. Rakesh Ltd will give 4 shares for every 5 shares in Ramesh Ltd of Rs 100 each.
2. Rakesh Ltd paid Rs per share for every share in Ramesh Ltd.

Calculation Steps:
1. Find the total number of shares in Ramesh Ltd: 4,000 shares.
2. Calculate the total value of Ramesh Ltd's equity shares: 4,000 shares x Rs 100 per share = Rs 4,00,000.
3. Add the reserve and surplus of Ramesh Ltd: Rs 4,00,000 + Rs 50,000 = Rs 4,50,000.
4. Apply the absorption ratio:
- For every 5 shares in Ramesh Ltd, Rakesh Ltd will give 4 shares.
- This means that Rakesh Ltd will give (4/5) x 4,000 = 3,200 shares.
5. Calculate the value of each share in Rakesh Ltd:
- Let the value per share be Rs X.
- Rakesh Ltd will pay Rs X per share for every share in Ramesh Ltd.
6. Calculate the total purchase consideration:
- Rakesh Ltd will give 3,200 shares x Rs X per share = Rs (3,200X) worth of shares.
- The total purchase consideration will be the sum of the shares and the reserve and surplus of Ramesh Ltd: Rs (3,200X + 4,50,000).

Explanation:
The purchase consideration is the total amount of money or assets paid by the acquiring company to the target company in a merger or acquisition. In this case, Rakesh Ltd is acquiring Ramesh Ltd, and the purchase consideration is calculated using the net payment method. This method involves exchanging shares between the two companies, where the acquiring company gives its own shares to the target company's shareholders in exchange for their shares. The purchase consideration is then calculated based on the value of the acquiring company's shares and the number of shares exchanged. In this case, Rakesh Ltd is giving 4 shares for every 5 shares in Ramesh Ltd, and the value of each share in Rakesh Ltd is unknown. Therefore, we need to calculate the value of each share in Rakesh Ltd based on the total purchase consideration.

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