Meaning of Purchase Consideration

Dear, In case of Amalgamation, Purchase consideration is the price which is paid by the purchasing company (Transferee Company) for the purchase of business of the Vendor Company (Transferor Company). **Purchase consideration = shares & other securities issued + Cash Payment +other assets by the transferee company to the shareholders of the transferor company.** Methods of Calculating purchase consideration: **Lump Sum Method**: - Purchase consideration = Fixed sum agreed to be paid by the Transferee to the transferor company. **Net asset method**: - Purchase consideration = Net worth of the assets (Agreed value of entire asset – Agreed value of liabilities), taken over by the transferee company. **Net payment method**: - Purchase consideration = All the payments made by the transferee company to the shareholders of the transferor company in the form of cash, shares or debentures. **Intrinsic value or share exchange method**: - Purchase consideration = Net asset available to the equity shareholders /No.of equity shares.

As per Accounting Standard 14, Para 3(g) defines Purchase Consideration as the "aggregate of the shares and other securities issued and the payment made in the form of cash or assets by the transferee company to the shareholders of Transferor Company". Purchase consideration does not include the payments made directly to the creditors by the transferor company. It depends upon the fair value of the elements such as in the case of securities, the value fixed by the statutory authorities and in the case of other assets, the market value of assets given up. In the case of absence of market value, book value of the assets.

In case of Amalgamation, Purchase consideration is the price which is paid by the purchasing company (Transferee Company) for the purchase of business of the Vendor Company (Transferor Company). **Purchase consideration =** shares & other securities issued + Cash Payment +other assets by the transferee company to the shareholders of the transferor company. **Methods of Calculating purchase consideration:** 1. **Lump Sum Method: - Purchase consideration =** Fixed sum agreed to be paid by the Transferee to the transferor company. 2. **Net asset method: - Purchase consideration =** Net worth of the assets (Agreed value of entire asset – Agreed value of liabilities), taken over by the transferee company. 3. **Net payment method: - Purchase consideration =** All the payments made by the transferee company to the shareholders of the transferor company in the form of cash, shares or debentures. 4. **Intrinsic value or share exchange method: - Purchase consideration =** Net asset available to the equity shareholders /No.of equity shares.

Hi In Context of Amalgamation, Purchase Consideration is the value of shares and securities issued by the purchasing company to the shareholders of vendor company. Here the value will be measured by the Market Price of Shares and securities. While calculating purchase consideration amount paid to the Preference Shareholders and Equity Shareholders shall be considered.