when in a problem, if we have to calculate purchase consideration by net assets method so is it obvious that we should do the acounting procedure by purchase method(nature of amalgamation)???
2 Replies
Prasad
(CA Final)
(140 Points)
Replied 13 March 2009
No not necessary, net assets method is used to decide PC to be discharged.............
Here we take the agreed value of assets taken over by purchasing company..........so incase of pooling of interest we take book values to decide PC and incase of purchase method we take agreed values.
In case of pooling of interest we book assts and liabilities at their book value ..........and we take all assets and liabilities of selling co. In case of purchase method we take only agreed assets and liabilities and at agreed price.......
You can refer 5 conditions (mentioned AS 14) to decide whether it is pooling of interest or purchase method, those are the golden rules.
Therefore we can net asset method also for amalgamation (through pooling of interest)
triumph-CMA
(Chartered Accountant)
(503 Points)
Replied 15 March 2009
On the basis of the mode of calculating PC we can not say that whether Purchase method or pooling of interest method is to be adopted. The method to be adopted solely depends upon the nature of amalgamation i.e., whther it is in the nature of purchase or inthe nature of merger. It is merger if all the conditions given in th AS 14 are satisfied. If assets are takenover atvalue other than book value or all assets n liabilities are not taken over it is certainly a purchase n purchase method of accounting is used.
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