Hi,
This is a problem from Dr. Tulsian IPCC book Accounts 1, amalgamation chapter to find out purchase consideration illustration no. 1.
I can understand the equity shares portion of purchase consideration, but could not understand the preference share portion. The question goes like this.
500 PREFERENCE SHARES OF Rs. 100 each – Rs. 50000/- (vendor company)
THE ISSUE OF FULLY PAID 10% PREFERENCE SHARE IN PLTD. AT 125% AS IS SUFFICIENT TO DISCHARGE 9% PREFERENCE SHARE IN V Ltd. AT A PREMIUM OF 20%.
Answer – [(50000*120%)/125]*125% = Rs. 60000/- (480*120)
I don’t understand the 125% usage. What is the meaning? Why is it multiplied and divided.
Can someone explain it?
Thanks and Regards
CAclubindia
