Page 117 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

notes 6.2.1 purchase consideration

Purchase Consideration refers to the consideration payable by the purchasing company to the
vendor company for taking over the assets and liabilities of Vendor Company.
Para 3(g) of Accounting Standard – 14 defines the term purchase consideration as the “aggregate
of the shares and other securities issued and the payment made in the form of such or other
assets by the transferee company to the shareholders of the transferor company”. Although,
purchase consideration refers to total payment made by purchasing company to the shareholders
of Vendor Company, its calculation could be in different methods, as explained below:
(a) Lump sum method
(b) Net payments method
(c) Net Assets Method

(d) Other basis for purchase consideration
We have discussed the above said methods in unit 4.

6.2.2 Discharge of purchase consideration

Discharge of purchase consideration refers to the form in which, the purchase consideration is
discharged by the purchasing company. Under net payments method calculation and discharge
of purchase consideration would be one and the same. Under net Assets Method and Lump Sum
Method based on the information in the problem the mode of discharge must be ascertained.
When the problem is silent about the mode of discharge of purchase consideration, it must
be assumed that purchase consideration is discharged by issue of equity shares of purchasing
company.

Notes In case of amalgamation in the nature or purchase, all items relating to equity
shareholders must be transferred to the equity shareholders account other than statutory
reserves, which must be transferred to realisation account.

self assessment

Fill in the blanks:
8. Under ................... and Lump Sum Method based on the information in the problem the
mode of discharge must be ascertained.
9. Purchase consideration refers to ................... made by purchasing company to the
shareholders of Vendor Company.
10. The accounting procedure in case of ................... is the same as in case of amalgamation or
absorption in the nature of purchase.

11. Discharge of purchase consideration refers to the form in which, the purchase consideration
is discharged by the ................... company.
12. Under ................... method calculation and discharge of purchase consideration would be
one and the same.

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