Question
What do you mean by Purchase Considerations? Explain the various methods for the calculating of purchase consideration.
Answer :
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Purchase consideration refers to the amount payable by a transferee company to the transferor company in exchange for taking over its business during amalgamation, absorption, or reconstruction. It represents the agreed value of the net assets or business acquired and is the price paid by the purchasing company to the selling company. Purchase consideration is an important concept in corporate accounting because it determines the amount to be recorded in the books of the transferee company and forms the basis for calculating goodwill or capital reserve arising on acquisition. According to accounting principles, purchase consideration includes only the payments made to shareholders of the transferor company. It does not include payments made to debenture holders, creditors, or expenses of liquidation unless specifically agreed. The consideration
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