Fair Value vs Face Value | AS 14 Amalgamation Purchase Consideration | CA INTER CAPSULE | SEP 2026

M&A Accounting: What is Purchase Consideration? When companies merge or get acquired, a lot of money changes hands. But what actually counts as Purchase Consideration (PC)? Let's break it down simply. The Rule: Who Gets Paid? Purchase consideration is strictly the amount payable to the owners of the vendor company: Equity Shareholders Preference Shareholders Example: If Company K pays ₹200 crore to Company L's equity shareholders and ₹100 crore to preference shareholders, the PC is exactly ₹300 crore. What is Excluded? Any payment made to anyone else for any other purpose is handled separately and is not part of the PC. This includes: Payments to debenture holders (e.g., settling a ₹50 crore debt) Vendor company liquidation expenses Cash given for out-of-court settlements Cash vs. Kind (Fair Value) If payment is made in cash, it is straightforward. If it is made "in kind" (assets or shares), it is always measured at Fair Value (Market Price), never face value. Whether the purchasing company gives its own equity shares, 12 luxury flats in Mumbai, or even 10 elephants, the PC is calculated using the current market price of those assets. The Bottom Line: If the payment isn't going directly to equity or preference shareholders, it does not count as Purchase Consideration. Save this post for your next finance exam or client meeting. #CorporateFinance #MergersAndAcquisitions #AccountingTips #Finance101 #PurchaseConsideration #CharteredAccountant #BusinessStrategy #MBAFinance #FinancialAccounting #CorporateLaw