1. Method to calculate Purchase Consideration:
|Net Asset method |Intansic value method |Net payment method | |Agreed value of |MV of total assets xxx |Amalgamation in nature of: - | |assets taken over xxx |Less: MV of total Liab. xxx |Merger: Amount paid to Equity shareholders| |Less: Agreed value of |Net intrinsic value xxx |only in the form of equity shares in | |Liab. taken over xxx | |purchasing company except cash for | |PC xxx | |fraction of shares. | | | |Purchase: Cash and agreed value of shares,| | | |debentures and other assets given by | | | |purchasing company to the liquidator of | | | |vendor company For the Shareholders of | | | |vendor company. | | |Intrinsic Value = Net Intrinsic value | | | |Per share No. of equity share | | | | | | | | | | | |PC= No. of equity shares purchased X Intrinsic| | | |value per share of vendor company | |
Note: If information about all the three method is given in the question then we should follow Net payment method.
2. Amalgamation in nature of merger: Amalgamation deemed to be in the nature of merger if following conditions are satisfied: - (BARED)
□ Business of vendor company must be carried on by the purchasing company. □ All assets and liabilities of vendor company transferred to purchasing company. □ Recorded in new company of assets and liabilities taken over at Book Value of vendor company. (Except to comply with accounting policy) □ Equity shareholders holding 90% shares (except already held) agree to become shareholders in new company. □ Disbursement of Purchase Consideration only in shares except cash for fraction of shares.
3. Entries in books of vendor company:
a) Realisation account: We have to follow the following procedure □ Transfer all real assets to debit side at Gross Book Value including goodwill but excluding fictitious assets. □ Transfer all outside liabilities to credit side at Gross Book Value but excluding accumulated reserves and surplus. □ If any asset/liabilities not taken over than any realisation on sale of such asset or payment on disbursement of such liabilities is credited/debited to realisation account. □ Amount of Purchase Consideration is credited to realisation account. □ Liquidation expenses debited to realisation account if born by vendor company □ Realisation account is balanced and the balance of this account is profit or loss on...