When determining the cost of a company to be purchased, the management of the two companies have to value the assets, the potentials and the perceived benefits or losses that the company is having; there is also a consideration of the debtors and creditors of the acquired company as well as contingency accounts.
The final cost determination should follow International Financial Reporting Standards and International Standards of Accounting, both parties should accept it and the concerns of either looked into. Sometimes depending on the nature of the contract and following international accepted manners, the company can decide to buy the company at a discount that can be seen as a higher value of the company; this should not cause an alarm since when it happens; a perceived future benefit that has been purchased.
When the accepted mode of purchase is used, there is no risk of busing the business at a higher price than the company is worth, the much that can be the difference is goodwill or the discount on purchase, which can be seen as intangible assets, acquired.
