Question

Purchase of goodwill by issue of debenture is

• A. Application of fund
• B. Source of fund
• C. No flow of fund
• D. None of these

Hint:

Fund flow involves movement of resources. Issue of debentures for goodwill is only an adjustment entry.

Answer 1

The Correct Option is C

Step 1: Concept of fund flow.
Fund flow refers to the movement of funds from one asset or liability to another, indicating inflow or outflow.
Step 2: Goodwill purchase through debentures.
When goodwill is purchased by issuing debentures, no actual cash inflow or outflow takes place.
It is just an exchange of one account (goodwill as an asset) with another (debenture liability).
Step 3: Option analysis.
- (A) Application of fund: Wrong, no fund is applied.
- (B) Source of fund: Wrong, no new source is generated.
- (C) No flow of fund: Correct, as there is no movement of funds.
- (D) None of these: Incorrect.
Step 4: Conclusion.
The transaction is treated as "No flow of fund."