Name – Aditya Sikdar
Class – 1 BCom. A
Reg. No. – 21111007
The Net payment method
This method is used when the payment of the purchase considerations is made in the form of
securities or cash. As per this method, the payments to the debenture holders are not included in the
purchase considerations. It is assumed that the debentures alike liabilities are taken over and repaid
by the transferee company. The agreement between the selling company and purchasing company
may specify the amount payable to the shareholders of the selling company in the form of cash or
shares or debentures in purchasing company. Under the net payment method purchase consideration
is the total of shares, debentures, and cash which are to be paid for claims of Equity and Preference
shareholders of the transferor company.
EXAMPLE:
X Ltd. agreed to take over the business of Y Ltd. the liabilities of Y Ltd. include Rs. 5,00,000
debentures. The Y Ltd. has capital divided into 2,000 shares of Rs. 10 each. X Ltd agreed to pay by
issuing 1,000 shares of Rs. 15 each and the balance by cash. The purchase consideration will be
calculated as follows:
Shares issued : 1,000*15= 15,000
Cash paid : 5,000
Total : 20,000
The purchase consideration does not include the amount to be paid to the debenture holders by the
transferee company.
The following points should be noted while ascertaining the purchase price under the net payment
method:
• The assets and liabilities taken over by the transferee company and the values at which they
are taken over are not relevant to compute the purchase consideration.
• All payments agreed upon should be added, whether it is for equity shareholders or
preference share-holders.
• If any liability is taken over by purchasing company to be discharged, later on, such amount
should not be deducted or added while computing purchase consideration.
• When liabilities are not taken over by the transferee company, they are neither added nor
deducted while computing consideration.
• Any payment made by the transferee company to some other party on behalf of the transferor
company is to be ignored.
Class – 1 BCom. A
Reg. No. – 21111007
The Net payment method
This method is used when the payment of the purchase considerations is made in the form of
securities or cash. As per this method, the payments to the debenture holders are not included in the
purchase considerations. It is assumed that the debentures alike liabilities are taken over and repaid
by the transferee company. The agreement between the selling company and purchasing company
may specify the amount payable to the shareholders of the selling company in the form of cash or
shares or debentures in purchasing company. Under the net payment method purchase consideration
is the total of shares, debentures, and cash which are to be paid for claims of Equity and Preference
shareholders of the transferor company.
EXAMPLE:
X Ltd. agreed to take over the business of Y Ltd. the liabilities of Y Ltd. include Rs. 5,00,000
debentures. The Y Ltd. has capital divided into 2,000 shares of Rs. 10 each. X Ltd agreed to pay by
issuing 1,000 shares of Rs. 15 each and the balance by cash. The purchase consideration will be
calculated as follows:
Shares issued : 1,000*15= 15,000
Cash paid : 5,000
Total : 20,000
The purchase consideration does not include the amount to be paid to the debenture holders by the
transferee company.
The following points should be noted while ascertaining the purchase price under the net payment
method:
• The assets and liabilities taken over by the transferee company and the values at which they
are taken over are not relevant to compute the purchase consideration.
• All payments agreed upon should be added, whether it is for equity shareholders or
preference share-holders.
• If any liability is taken over by purchasing company to be discharged, later on, such amount
should not be deducted or added while computing purchase consideration.
• When liabilities are not taken over by the transferee company, they are neither added nor
deducted while computing consideration.
• Any payment made by the transferee company to some other party on behalf of the transferor
company is to be ignored.
