New set of books are opened
The following are the entries recorded by the purchasing company:
1. | Purchasing consideration payable | Business Purchase Account
To Vendor Account |
Dr. |
2. | Acquiring various assets and liabilities at agreed value | Various Assets Account To Various Liabilities Account To Business Purchase Account |
Dr. |
Note: If the purchase price exceeds the net assets, the excess amount is debited to Goodwill Account; and if the net assets exceeds the purchase price, the excess amount is credited to Capital Reserve.
3. | On payment of purchase price in kinds | Vendor Account Dr. |
To Share Capital Account | ||
To Debenture Account | ||
To Cash/Bank Account |
Alternatively: The following entries can also Passed: | |||
1. | Acquiring various assets and liabilities at agreed value | Various Assets Account | Dr. |
To Various Liabilities Account | |||
To Vendor Account |
Note: Any difference between the totals of debit and credit is debited to Goodwill Account or credited to Capital Reserve Account.
2. | On payment of purchase price | Vendor Account | Dr. |
To Share Capital Account | |||
To Debenture Account | |||
To Cash/Bank Account |