Question

If vendors are issued fully paid shares of \rupee1,25,000 in purchase consideration of net assets of \rupee1,50,000, the balance of \rupee25,000 will be credited to:

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

Hint:

When net assets exceed the purchase consideration, the difference is credited to the Capital Reserve Account. If the purchase consideration exceeds the net assets, the difference is debited to the Goodwill Account.

Answer 1

The Correct Option is C

The purchase consideration (\rupee1,25,000) is less than the net assets acquired (\rupee1,50,000). The difference of \rupee25,000 represents a gain, which is transferred to the Capital Reserve Account as per accounting standards. Calculation: \[ \text{Net assets} = \rupee1,50,000,\quad \text{Purchase consideration} = \rupee1,25,000. \] \[ \text{Balance credited to Capital Reserve Account} = \rupee1,50,000 - \rupee1,25,000 = \rupee25,000. \]