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CMA Intermediate · Financial Accounting · Amalgamation of Partnership Firms

Firm A and Firm B amalgamate. Firm A's assets taken over are agreed at Rs 8,00,000 and its liabilities taken over at Rs 2,00,000. The new firm agrees to pay the net amount of assets less liabilities as purchase consideration. What is the purchase consideration payable to Firm A?

The purchase consideration is Rs 6,00,000. Under the net assets method, the agreed value of assets taken over, Rs 8,00,000, is reduced by the liabilities assumed by the new firm, Rs 2,00,000, because the new firm pays only for the net value acquired.

  1. ARs 10,00,000
  2. BRs 8,00,000
  3. CRs 2,00,000
  4. DRs 6,00,000Correct

Explanation

Purchase consideration under the net assets method = agreed value of assets taken over minus liabilities taken over = 8,00,000 - 2,00,000 = Rs 6,00,000. Rs 8,00,000 ignores the liabilities assumed. Rs 10,00,000 adds liabilities by the wrong sign.

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