When the purchasing company decides to compensate the selling company on the basis of the agreed value of assets and liabilities, the method of calculating purchase consideration is _______________.

Net payment method

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Net assets method

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Lump sum method

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Intrinsic value method

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Solution

The correct option is B Net assets method
Under this method, purchase consideration is calculated on the basis of adding the value of all assets and deducting the value of liabilities to find out the net assets of the business.
Below is the example:

Land & Building Rs.5,00,000
Plant & Machinery Rs.2,00,000
Furniture & Fixtures Rs.60,000
Debtors Rs.40,000
Stock Rs.30,000
-------------------
Total Assets Rs.8,30,000
Less: Liabilities Rs. 2,30,000
-------------------
Purchase Consideration Rs.6,00,000
--------------------

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