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Nilanjan Bhowmick AIR 3, CSIR NET (Earth Science)
Nisha Sharma posted an Question
April 08, 2021 • 16:48 pm
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30 points
30 points
- UGC NET
- Commerce
Explain me the purchase method of amalgamation
explain me the Purchase method of amalgamation...I have not understood this method
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Priya gulani
c. Net Assets Method : If the purchase consideration can not be calculated by above two methods then this methods should be adopted. It is the aggregate of the assets taken over at agreed values less liabilities taken over at agreed values.
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Priya gulani
Purchase Consideration is the sale price of the business agreed mutually between the two parties, the transferor company (selling company) and the transferee company (purchasing company). The AS 14 defines the Purchase Consideration as “ the aggregate of the shares and other securities issue and payment made in the form of cash or otherwise by the transferee company to the “SHAREHOLDERS OF THE TRANSFEROR COMPANY”. In other words any payment made to or in satisfaction of other liabilities should not be included in the amount of purchase consideration. If any payment is made to the creditors, debenture holders or any other liabilities, then it should be assumed that such liability is taken over by the transferee company and then it is settled by the transferee company. It should also be noted that liquidation expenses of the transferor company should not be included in the purchase consideration. 8.5.2 METHODS OF PURCHASE CONSIDERATION: a. Lump-sum method: The problem may give the amount of purchase consideration directly and hence there will not be any need to calculate the purchase consideration. e.g. Alka techno Ltd. agrees to take over business of WLC Ltd for a sum of Rs.10 lakhs. b. Net Payment Method: If the purchase consideration is not given Lum-sum then this method should be adopted. Here the purchase consideration is arrived at by adding up cash paid and the agreed values of shares, securities issued by the transferee company to share holders of transferor company in discharge of the purchase consideration. e.g. Reena Engineers Ltd. takes over business of Ramesh Kashyap Ltd. and agrees to pay the purchase consideration as follows: issue of 10,000 equity shares of Rs.10 each at Rs. 12 each and cash Rs. 50,000. Hence the purchase consideration would be Rs 10,000 equity shares of Rs.10 each at Rs. 12 each 1,20,000 Cash 50,000 Purchase consideration 1,70,000
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Priya gulani
8.4 DISTINCTION BETWEEN MERGER AND PURCHASE : 1. Shareholders of the transferor company holding 90% of the face value of equity shares become shareholders of transferee company in merger 1. Shareholders of the transferor company may not become shareholders of transferee company. 2. There is a genuine polling of assets and liabilities of the amalgamating companies. 2. There is no genuine polling of assets and liabilities of the amalgamation companies. 3. There is poling of interest of shareholders also. 3. There may not be pooling of interest of shareholders 4. Values of assets and liabilities, reserves represent the same values of amalgamating 4. The values of assets and liabilities may be different than the amalgamating companies.
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Xxx
good qs
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Nisha sharma
explain me in an easy language by giving example
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Rucha rajesh shingvekar
Under the purchase method, the transferee company accounts for the amalgamation either by incorporating the assets and liabilities at their existing carrying amounts or by allocating the consideration to individual identifiable assets and liabilities of the transferor company on the basis of their fair values
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Priya gulani![best-answer]()
d. Exchange of shares Method / Intrinsic value Method : Under this method the intrinsic value of the shares of both the companies is calculated and then the transferee company issue the shares to the transferee company on the basis of these values.
why transferor company will issue shares...??
yes you are right the transferee co will issue the shares. My typing mistake. This method is also known as Share Proportion Method. Suppose, in exchange of 50 shares of transferor company, 100 shares of transferee company is available, then every one share in the transferor company, two shares in the transferee company is available. Therefore, the ratio is 1: 2.