Certified Financial Management Specialist Practice Exam

Which term describes the acquisition of one company’s assets by another during liquidation?

1. Purchase of assets

2. Vertical merger

3. Management-led buyout

4. Horizontal merger

The correct answer is: Purchase of assets

The term that best describes the acquisition of one company’s assets by another during liquidation is the purchase of assets. In this context, when a company undergoes liquidation, it is selling off its assets, typically to pay off debts. A purchase of assets involves the acquiring company buying specific assets, such as equipment, inventory, or real estate, rather than purchasing the entire company itself. This transaction is common during liquidation, as it allows the buyer to selectively acquire valuable resources while also meaningfully addressing the seller's outstanding financial obligations. In contrast, other terms like vertical merger and horizontal merger refer to different types of business consolidations. A vertical merger occurs between companies operating at different stages of production within the same industry, while a horizontal merger involves companies at the same level of production or service in the same industry. A management-led buyout entails the current management team acquiring a significant portion or all of the company they manage, which is not necessarily related to liquidation. Thus, the purchase of assets accurately captures the transactional nature of acquiring assets specifically during a company's liquidation process.