Page 26 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 1: Acquisition of Business

l z In most circumstances, there is no choice as to how the vendor sells the business, however notes
if there is a choice then the purchaser should consider what is the best type of purchase
transaction for their specific circumstance.

l z One should consider what legal vehicle to use to purchase the business (i.e. sole trader,
partnership, company etc).
l z Once decided as to how to buy the business the purchaser should then conduct a thorough
investigation regarding the various issues.

l z Purchasers should allow themselves adequate time to conduct all necessary enquiries of
the vendor, business, and the property on which the business operates.

l z If the vendor is a company, one should search the company’s records about directors
and secretary, registered office and mode of execution of instruments (contained in its
regulations).

l z The search will also indicate whether assets of the company are the company and possibly
the business may be secured by way of a company charge.
l z Searched should also be conducted of the business name, trade name, and trade mark
or product name included in the sale to determine whether the vendor is the registered
owner.

l z The purchaser should consider if whether it wants to trade under the same business name
or a different business name.

1.4 keywords

Acquisition Financing: The type of funding obtained by a business for the purpose of purchasing
another business.

Acquisition Planning: Coordination of the activities of the personnel involved in the purchase of
an asset or supply to ensure it’s timely and cost effective acquisition.
Customer Acquisition: The process of persuading a consumer to purchase a company’s goods
or services.
Debts: An amount of money borrowed by one party from another.
Employee: A person who is hired to work for another or for a business, firm, etc., in return for
payment.
Goodwill: An account that can be found in the assets portion of a company’s balance sheet.
Single Acquisition: It refers to one company buying the assets and operations of another company
and absorbing what is needed while simply discarding duplicated or unnecessary pieces of the
acquired business.

1.5 review Questions

1. What do you mean by purchase of business?

2. What is purchase consideration? How is it determined?
3. What do you mean by vendor’s guarantee?
4. Explain the concept of vendor’s suspense account.
5. What do you mean by acquisition of business? What factors should be kept in mind while
calculating purchase consideration?

lovely professional university 21