Question

Affle Ltd purchase the running business of KPIT Ltd consist total
asset of Rs. 10,00,000 liabilities of Rs. 2,00,000. Affle Ltd paid Rs.
2,00,000 immediately in cash and balance by issuing 7,000 share
of Rs. 100 each at a premium of Rs. 20 per share. The goodwill
A/c will be debited by Rs.

Answer 1

Answer:

The answer is rs.240,000

Explanation:

the business is bought for 200,000+840,000(7000*120)=1040,000//

the net total assets of the firm are rs.10,00,000. which means we bought the business for value more than its net assets.(1040,000>10,00,000). Which means there's a goodwill for this business.

so the journal entry is,

sundry assets dr 10,00,000

goodwill*  dr 240,000  

          to sundry liability 200,000

          to vendors a/c (purchase consideration) 1040,000

*the goodwill is the balancing figure,ie, (1040,000+200,000)1240,000-10,00,000=240,000

Answer 2

                                              Books of Affle Ltd.

Particulars                                  Debit                     Credit

Sundry Assets A/c Dr.                 10,00,000

Goodwill A/c Dr.                               40,000  

To Sundry Liabilities A/c                                                2,00,000

To KPIT Ltd A/c                                                               8,40,000

(Purchase of a running business from KPIT Ltd)  

KPIT Ltd A/c Dr.                           60,00,000

To Equity Share Capital A/c (7,000 x 100)                    7,00,000

To Securities Premium Reserve A/c (7,000 x 20)         1,40,000

(Purchase consideration for acquiring business by issuing 7,000 equity shares of Rs. 100 at 20% premium)  

Goodwill A/c will be debited by Rs.40,000