As per Net Asset Method Purchase Consideration is Equal to
By BYJU'S Exam Prep
Updated on: November 9th, 2023
As per the net asset method, purchase consideration is equal to the total net assets of the transferor company. The payment made by the transferee company to the transferor company in exchange for the acquired business is referred to as Purchase Consideration. It covers all forms of payments, whether they are made in the form of cash, shares, equities, bonds, or other items.
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Net Asset Method of Purchase Consideration
Depending on the terms and conditions agreed upon by the transferor corporation, there are many methods of purchase consideration. The net asset technique is the first. According to this procedure, the total assets and liabilities that the transferee company has acquired are subtracted to determine the net asset value. The Lump Sum technique comes next.
The value of the assets and liabilities is determined between the two companies and does not appear on the balance sheet. Payment to debenture holders or any other external obligations assumed and discharged by the Transferee Company is not included in the purchase consideration.
- This occurs when the Transferee Company consents to pay the Transferor Company a set amount of money.
- Just as XYZ Limited consents to pay 25 lakhs to ABC Ltd. This is the lump sum approach.
- Intrinsic value, sometimes known as the share exchange approach, is the fourth.
- The following procedure is utilized in this method to compute purchase consideration: Net asset available to the equity shareholders/ number of equity shares.
Summary:
As per Net Asset Method Purchase Consideration is Equal to
Total net assets are equal to the purchase consideration, according to the net asset method of the transferor company. There are multiple methods of purchase consideration. The net payment method is the second one. The acquisition consideration in this situation is determined by aggregating all dividends paid to transferor company shareholders by the transferee firm. Cash, stock, or debentures are all acceptable forms of payment.
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