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Unit 1: Acquisition of Business
Ashwani Panesar, Lovely Professional University
unit 1: acquisition of Business notes
contents
Objectives
Introduction
1.1 Some Important Terms Relating to Acquisition of Business
1.2 Accounting Treatment
1.2.1 Accounting Treatment: In the Books of Vendor
1.2.2 Accounting Treatment: In the Books of Purchasing Company
1.3 Summary
1.4 Keywords
1.5 Review Questions
1.6 Further Readings
objectives
After studying this unit, you will be able to:
l z Define the term acquisition of business
l z Discuss some important terms related to acquisition of business
l z Explain the accounting treatment for acquisition of business
l z Solve some numerical problems related to purchase of business
introduction
Acquisition or purchase of business by an incorporated company means the purchase of or taking
over the existing business of a non-corporate body as sole proprietorship or partnership firm. An
existing business of a sole trader or partnership firm can be acquired by an existing corporate
company or by a newly formed company. When a corporate business is purchased by another
corporate body it is related to the subject matter of amalgamation, absorption and reconstruction
of companies. The company that acquires the business is called the purchaser company and the
seller of the business is called the vendor.
In this unit, we will discuss few important terms related to acquisition of business. Then, we
will focus on accounting treatment of the business which will be further elaborated by few
illustrations.
1.1 some important terms relating to acquisition of Business
Acquisition of business by a limited company generally refers to the purchase of a non-corporate
business like sole-proprietorship or partnership form of business by a company. This does not
necessarily mean that a limited company cannot acquire the business of a corporate body i.e.,
another limited company. But strictly speaking, the acquisition of business of a limited company
by another limited company comes under the purview of amalgamation absorption and
reconstruction of companies.
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