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Entity A issues 1,50,000 shares (₹20 market price each) to acquire 100% of Entity B (60,000 shares; market ₹105 each) at a 2.5:1 exchange ratio. After the deal, ex-Entity-B shareholders hold 83.33% of the combined entity and Entity B's directors hold 6 of 8 board seats. Entity A's identifiable net assets (FV = CV) ₹11,00,000. This is a reverse acquisition; goodwill is:
A₹2,60,000
BNil — bargain purchase
C₹4,50,000
D₹1,60,000
Answer & Solution
Correct answer: D. ₹1,60,000
Entity B is the accounting acquirer. Effective consideration = B's notional issue to A's shareholders. To maintain the 30,000 : 1,50,000 (= 12,000 : 60,000 in B's terms) split, B notionally issues 12,000 shares at FV ₹105 = ₹12,60,000. Goodwill = ₹12,60,000 − ₹11,00,000 net assets of A (accounting acquiree) = ₹1,60,000.
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