PRESENTED INTERNAL SEMINAR OF COMPANY ACCOUNT

Submitted By:Vardhan jainB.Com Ist year13D244

PURCHASE OF BUSINESS OF ACCOUNTING TREATMENT

TOPIC

WHAT IS PURCHASE OF BUSINESS ?

When a sole proprietor or partnership converts the existing business into a company (Public or private company) with a view to securing to itself the advantages of a company . ( Alternative the business may be sold to an existing company this is called purchase of business.

ACCOUNTING ENTRIESThe following entries are made in case of purchase of business.

S.no. Particular L.

F.Amount Dr Amount

Cr

1.

2.

On purchase of business

Business purchase A/C Dr To vendor’s A/C (Being purchase of business)

On assets and liabilities taken over

Sundry assets A/C Dr To sundry liabilities A/C To business purchase A/C To Capital reserve A/C ORSundry assets A/C DrGood will A/C Dr To sundry liabilities A/C To business purchase A/C(Being assets and liabilities taken over)

In the books of purchasing company

3.

4.

On payment of purchase consideration

Vendor’s A/C Dr To equity share capital A/C To preference share capital A/C To debentures A/C To bank A/C

(Being payment of purchase consideration)

On payment of cost of acquisition

Good will A/C DrPreliminary expenses A/C Dr To bank A/C

(Being payment of cost of acquisition)

IN THE BOOKS OF VENDOR COMPANY (VENDOR)

S.no.

Particular L.F. Amount Dr

Amount Cr

1.

2.

3.

On assets taken over by the purchasing company

Realisation A/C Dr To sundry assets A/C (Being assets taken over by the purchasing co.)

On liabilities transferred Liabilities A/C Dr To realisation A/C(Being transferred on liabilities)

On second of purchase consideration

Purchasing company A/C Dr To realisation A/C(Being purchase consideration)

4.

5.

(i)

(ii)

On payment of realisation expenses

Realisation A/C Dr To bank A/C(Being payment on realisation exp.)

For profit or loss or realisation A/C

In case of profit on realisation A/C

Realisation A/C Dr To vender’s capital A/C(Being profit on realisation)

In case loss on realisation A/C

Vender’s capital A/C Dr To realisation A/C(Being loss on realisation )

6.

7.

On purchase consideration received

Bank A/C DrShares in purchasing co. A/C DrDebentures in purchasing co. A/C Dr To purchasing co.(Being purchase consideration received)

On transfer of undistributed profit or reserve

Profit and loss A/C DrReserve fund A/C Dr To vender’s capital A/C(Being transfer of undistributed profit or reserve)

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