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Business purchase account


NS (Accountant)     13 December 2017

NS
Accountant 
 1 likes  26 points

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IPCC Study material - Advanced accounting - page no: 3.46 - illustration 2- can anybody explain following things for business purchase account -

1. What is the nature of business purchase account - it is showing debit balance

2. Why are assets not taken over transferred to this account?

3. How can we ascertain that the balancing figure is profit ?

4. Thae firm was taken on in March 2012, and the business purchase account is closed in December 2012 only. Why didnt they make the purchase consideration calculations and settlement entries in March 2012 and kept the busines purchase account open till end of the year?

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satish (teaching)     22 December 2017

satish
teaching 
 151 likes  1993 points

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Accounting treatment under amalgamation / absorption or external reconstruction:

1. at the time of making binding agreement (Due entry)

2. on transfer of possession of assets and liabilites. (incorporation of assets and liabilites)

3 on settlement of consideration. (Discharge of consideration by purchasing co)

Generally above three situation will not be on one single day.

 

Profit = Net assets - purchase consideration

         = 100    - 80  = 20

amount paid lesser than the asset values.


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