Homework answers / question archive / A) If a division of an existing company has to be spun-off into a subsidiary, it is necessary to pay a purchase consideration to the transferor company either by way of securities or cash or both

A) If a division of an existing company has to be spun-off into a subsidiary, it is necessary to pay a purchase consideration to the transferor company either by way of securities or cash or both

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A) If a division of an existing company has to be spun-off into a subsidiary, it is necessary to pay a purchase consideration to the transferor company either by way of securities or cash or both.

(a) True       (b) False

B.  In the spin-off of a subsidiary, the shareholders of the spun-off company are the shareholders of the parent.

(a) Yes    (b) No

C . In a demerger scheme, a division of Company A is proposed to be demerged into Company B and another division of Company B is proposed to be demerged into Company A. The mutual consideration is proposed to be set-off against each other such that both the companies do not propose any share issue. For the scheme to be fair and reasonable, it needs to be shown that:

(a) The number of shares to be issued by Company A is identical to that of Company B

(b) The book value of assets and liabilities to be transferred by Company B to Company A is identical to those of Company B to be transferred to Company A.

(c) There is approval by 75% of the shareholders of both companies to the scheme.

(d) The valuation of Company A and B are almost identical.