Shares issue for business purchased is also known shares issue for non-cash consideration.
Generally, similar business is purchased. When the company purchases business from other company, purchase consideration is fixed.
This purchase consideration can be paid by cash, equity shares and debentures.
While issuing shares, it may be at par, at discount or at premium.
Sometimes purchasing company purchases only assets from Vendor Company.
Sometimes, purchasing company purchases both assets and liabilities.
While purchasing business, there may be capital reserve or goodwill; it is calculated as balancing figure.
Purchasing company can issue some shares to public for cash.
Shares are issued on lump-sum basis.
Shares can be issued at par, at discount or at premium.
Net value or purchase consideration = Total assets – Total liabilities |
|
Purchase value = Net value Purchase value > Net value Purchase value < Net value |
neither goodwill nor capital reserve goodwill capital reserve |
Sometimes numbers of purchasing shares are given in the question and sometimes purchase consideration is given.
If numbers of shares are not given, following formula can be applied:
Number of shares (If shares are issued at par) = Purchase consideration ÷ Par value per share
Number of shares (If shares are issued at discount) = Purchase consideration ÷ (Par value per share – Discount per share)
Number of shares (If shares are issued at premium) = Purchase consideration ÷ (Par value per share + Premium per share)
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Journal Entries
In the book of Purchasing Company
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Assets and liabilities taken |
|
|
|
|
|
Sundry assets account (by name) Goodwill account To Capital reserve account To Sundry liabilities (by name) To Vendor company account (Being- assets and liabilities taken, balance as goodwill or capital reserve |
Dr Dr |
|
xxxx xxxx* |
xxxx* xxxx xxxx
|
|
Purchase consideration paid |
|
|
|
|
|
Vendor Company account Discount on shares account To Share capital account To Share premium (security premium) To % Preference shares capital To % Debenture account (Being- payment made by issuing ……..shares @ Rs |
Dr Dr
|
|
xxxx xxxx# |
xxxx xxxx# xxxx xxxx |
|
Share issued to public |
|
|
|
|
|
Bank account Discount on shares account To Share capital account To Share premium (security premium) (Being- ……. shares issued for public at …… |
Dr Dr
|
|
xxxx xxxx# |
xxxx xxxx# |
Keep in Mind (KIM)
Debit balance is goodwill. Credit balance is capital reserve In one question, either discount or premium# In one question, either goodwill or capital reserve* |
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