STEP 1 Purchase consideration
a) Lumsum method - Purchase consideration=given value
b) Net payment method
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Calculation of Purchase consideration: Share of purchasing co. ( No share of vendor × ------------------------× market price) Debenture of purchasing co. ( value of debenture × -----) or No of debenture × ------------- Cash |
Rs xxx xxx xxx |
|
Purchase consideration |
xxx |
c) Net assets method
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Taken over assets of purchasing co.(individually) Less:taken over liabilities of purchasing co.(individually) Add:goodwill |
xxx xxx xxx |
|
Purchase consideration |
xxx |
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Mode of payment Equity shares in purchasing co. Debenture of purchasing co. cash |
xxx xxx xxx |
|
Purchase consideration |
xxx |
Notes:
1) The term taken over all asset means including cash and goodwill expect fictitious asset taken over (heading 1+2+3)
2) Taken over or assumed all liabilities means all external liabilities expect debenture takeover
3) Taken over business means assets as well as external liabilities
4) The taken over all assets is given but silent about taken over liabilities in that case liabilities are not taken over
5) Taken over liabilities but silent about assets means taken over all assets as well as liabilities too.
6) The fund created out of staff salary is taken as external liabilities such as pension fund, employees' provident fund, workmen profit sharing fund, citizen investment fund.
7) External liabilities means all the current liabilities + fund created out of staff salary + LTD except debenture + unsecured loan
8) Accumulated profit and reserve are not included in external liabilities for example, Pl ac, general reserve, fund, workmen compensation fund, workmen accident fund, dividend equalization fund, sinking fund etc
9) Trade liabilities include sundry creditors, bills payable, and account payable.
10) The fund created out of staff salary is taken as external liabilities such as pension fund,employees provident fund,workmen profit sharing fund, citizen investment fund.
11) Market value (given in additional information) is used for net asset method where as while making journal book value (given in balance sheet) is used.
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