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Doubt

ajinkya (Student) (48 Points)

30 May 2011

while computing puchase consideration why shares are valued at market value and not at face value

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4 Replies

Deepesh Khatri (CA) (167 Points)
Replied 31 May 2011

Shares are normally purchased and sold at market value through a stock exchange. Hence market value is taken as purchase consideration.

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Admire to CA (student) (60 Points)
Replied 31 May 2011

we calculate Purchase consideration on Market Value in Case of BUsiness Purchase is in the Nature of "Purchase " to have a correct value of Consideration Paid to the shareholders.For eg. Suppose Mr. X have 1000shares face value Rs.10,and Market value of Rs 100.will he ever think of selling it for Rs.10..Ans -no,So The purchase consideration is settled at market value ,

In case of Purchase in the"Nature of Merger" share holders are not paid they r still d member of the transferee co.so in dis case Consideration is paid on face value and they get shares in new co. on facevalue of new co.and end result have no effect

CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
Replied 31 May 2011

Originally posted by : Admire to CA
	we calculate Purchase consideration on Market Value in Case of BUsiness Purchase is in the Nature of "Purchase " to have a correct value of Consideration Paid to the shareholders.For eg. Suppose Mr. X have 1000shares face value Rs.10,and Market value of Rs 100.will he ever think of selling it for Rs.10..Ans -no,So The purchase consideration is settled at market value , In case of Purchase in the"Nature of Merger" share holders are not paid they r still d member of the transferee co.so in dis case Consideration is paid on face value and they get shares in new co. on facevalue of new co.and end result have no effect

Abishek.S (articles) (53 Points)
Replied 31 May 2011

in the question itself they will give whether the purchasing co. is taking the vendor co.at mv or fv.if the question is silent put suitable assumption/.we have to take market value bcoz it is logic to purchase a company according to the current market condition i.e net worth of a co.