Question

If vendors are issued fully paid shares of ₹1,25,000 in purchase consideration of net assets of ₹1,50,000, the balance of ₹25,000 will be credited to:

• A. Statement of Profit and Loss
• B. Goodwill Account
• C. Capital Reserve Account
• D. Profit and Loss Adjustment Account

Hint:

In cases where the purchase consideration is less than the net assets acquired, the difference is transferred to the Capital Reserve Account. This reflects the firm's gain from the purchase.

Answer 1

The Correct Option is C

When vendors are issued shares worth Rs. 1,25,000 as consideration for net assets valued at Rs. 1,50,000, there is a surplus of Rs. 25,000. This surplus amount, representing the excess of net assets over the purchase consideration, is credited to the Capital Reserve Account as per standard accounting practices.