5

Acquisition of Business (Purchase of Business)

LEARNING OBJECTIVES

After studying this chapter you should be able to:

  1. Understand the meaning of acquisition.

  2. Explain the term “purchase consideration” and methods of determining purchase consideration—net assets method and net payment method.

  3. Treat capital reserve and goodwill.

  4. Understand the accounting treatment for acquisition of company under two different approaches: (a) when new set of books is opened and (b) when the same set of books is continued.

  5. Know key terms.

In corporate world, a limited company, in its later life, may acquire or purchase an existing business. The existing business may be in the form of sole proprietorship or of partnership or of a limited company. Such a process ...

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