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Purchase consideration

Accountancy

I am having doubt regarding purchase consideration.when to use this method . IIL 8 and 11 8 - pg no :5 45 11-pg.no : 5.59

Prasanna Venkatesan

CA Inter

★ 3K+

31-Aug-21 13:12

268

Answers (3)

Best Answer

Sudha Reddy

The choice of method depends on availability of information. If information is available on all modes of discharging the purchase consideration (e.g. preference shares, equity shares or cash payable to shareholders of Transferor Company) along-with their amounts, then Net Payment Method should be used. In other cases â??Net Assetsâ?? Method should be used.

Net Payment Method - the aggregate of all payments made in the form of shares, debentures, other securities and cash to the shareholders of the transferor company is taken as consideration Net Assets / Net Worth Method - is used when all the modes of discharging the purchase consideration (e.g. Pref. Shares, Equity shares or cash payable to shareholders of transferor company) are not given and hence where Net Payment Method cannot be adopted. Under this Method, purchase consideration is ascertained by aggregating the agreed values of only those assets which have been taken over by the transferee company and deducting it from the agreed value of liabilities taken over.