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Calcualtion of reserve
wil u plz explain why there is difference in calculating reserves under merger and purchase method?
Replies (7)
In merger, all reserves are carried over by transferee entity.
And in purchase method, only statutory reserves are carried forward in books of trasferee entity.
Ya its right n thnk u..bt why in merger pc compared against paid up capital and in purchase method against net assets..
Ya its right n thnk u..bt why in merger pc compared against paid up capital and in purchase method against net assets..
Because in merger. Only share capital is changed. Rest items of bal sheet remain same. Therefore old and new share capital is compared and difference is adjusted in reserves.
And in purchase. Not everything is bought or sold. Thats why cost of assets acquired and pc is compared. Same as you buy something from market cheaper or more and pay money. Then you will compare payment with cost of item, how much cheaper or expensive you get.
Expensive means goodwill. Cheaper means capital reserve.
Okk..thnk u so nuch for explanation
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