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Query regarding amalgamation

falguni (.) (44 Points)

28 May 2013

my query is regarding the calculation of purchase consideration.

when i solve question of amalgamation, i dont understand which method shud i use for calculation of purchase consideration. please help me.

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5 Replies

CA Mukesh Choudhari (xyz) (153 Points)
Replied 29 May 2013

There are 4 methods available. Namely, 1) lumpsum method 2) net asset method 3) net payment method 4) intrinsic value method Now choosing one of the method depends upon the info given in question. Suppose in Q it is given an lumpsum amt say pc is rs. 1 lakh..then it is lumpsom method Or when in question it is given that purchasing co. taking over so and so asset and so and so liablity..that There are three method available. Namely, 1) lumpsum method 2) net asset method 3) net payment method 4) intrinsic value method Now choosing one of the method depends upon the info given in question. Suppose in Q it is given an lumpsum amt say pc is rs. 1 lakh..then it is lumpsom method Or when in question it is given that purchasing co. taking over so and so asset and so and so liablity..that is net payment payment... The other is intrinsic value methodit is net payment payment... The other is intrinsic value method which would be specifically given in Q The residuary method..when Q is silent about which method to pick...then one shud opt for net asset method

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Chinnu Raj (CA Final Student B.Com) (1067 Points)
Replied 29 May 2013

Its very simple my dear friend.

you see there are mostly 3 methods like-

1.assets method

2.net payment method

3.lumpsum method

In the question wenever there is a clear evidence about the payment of p.c either in the equity,[or],preference,[or],cash then you can go for the payment method

if there is no clear information regarding the payment of p.c,in other words only you can find the half information regarding how to pay the p.c then you can select assets method and

lastly,lumpsum method is the method were you can pay either of the way as you wish to pay them.

Regarding any problem in solving the problems you can keep a query like this

RAHUL KUMAR SINGH (N.A) (28 Points)
Replied 30 May 2013

There are mainly 3 Methods

1. Net payment method

2 net assets methods

3. intrinsic value method

1. net payment method : - jab question me yeh bata rakha ho ki pc. kaise or kitne amount se satisfy karna he to yeh method lagta hai. Example:-

equity share of rs. 10 worth of rs. 1000000 , 15% preference share of 100 worth rs. 1500000 and cash of rs. 500000

now in this every thing has been already given to you and the sum total of all these gives u th p.c. yeh sabse easy method hai.

2. Net Assets method :- jab question me yeh to bata rakha ho ki p.c kaise satisfy karna hai par yeh na bataya ho ki kitne amount se satisfy karna hai to net assets nikalte hain jisse ki company ki actual worth pata chal sake or utna hum satisfy kar sakein.

Example :- 10 % preference shares of rs. 1500000/- , cash of rs. 500000/- and equity shares of rs. 100 each.

Now in the above situation mode of satisfying p.c is given but it is not given how much to satisfy. jaise ki equity shares kitne rs. ke issue karne hain yeh nahi bataya gaya hai. is case me net assets nikalenge or cash + prefence shares ke 2000000/- subtract karne ke baad jo bachega utne amount ke equity share de denge.

3. intrinsic value method :- iske baars me question me already given hoga you dont have to worry about it. lekin isme bhi jitna net assets hain utne ka hi P.C hoga.

waise method koi bhi ho.........main method to net assets hi hai.....kyuki net assests se hi pata chalta hai ki buisness ki worth kya hai.. net payment method me jo amount batai gayi hoti hai...wo bhi to kahin na kahin se koi working karke hi batayi gayi hoti hogi na....aise hi koi hawa me buisness ki worth thodi na bata sakte hai...........hence neta assets prevails above all.