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CMA Intermediate · Financial Accounting · Conversion of Partnership Firm into a Company and Sale of Partnership Firm to a Company

Under the net asset (net payment) method, the purchase consideration for a partnership firm taken over by a company is computed as:

Purchase consideration under the net payment method is the agreed value of assets taken over minus the liabilities taken over by the company. Assets or liabilities not taken over are excluded, so the result is the net amount payable to the vendor firm.

  1. AAgreed value of assets taken over less liabilities taken overCorrect
  2. BTotal of assets at book value including cash not taken over
  3. CSum of the shares and debentures issued to the partners' creditors
  4. DPaid-up capital of the purchasing company

Explanation

Under the net payment method, consideration equals the agreed value of assets taken over minus the liabilities taken over. Assets not taken over, such as excluded cash, are left out, so including them overstates the amount. The other options do not describe the method.

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