How Purchase Consideration is Calculated According to AS-14?

Calculation of purchase consideration is one of the important task in the process of amalgamation of companies. The purchase consideration is determined as per the agreement between the companies.

While calculating the purchase consideration, the provision of AS-14 must be taken into consideration. As per AS-14, Purchase consideration means, “the aggregate of the shares and other securities issued and the payment made in the form of cash or other assets by the transferee company to the shareholders of the transferor company”.

Also read | Limitations of analysis of financial statements.

Important Points Regarding Purchase Consideration: 

1. Only payment to shareholders are to be taken into consideration.
2. Consideration for debenture holders will not be included in the purchase consideration.
3. Liquidation expenses or payment for cost of absorption are not included in the purchase consideration.