Question

Excess value of net assets over purchase consideration at the time of purchase of business is

credited to:

(a) General Reserve A/c (b) Capital Reserve A/c

(c) Goodwill A/c (d) Securities Premium Reserve A/c​

Answer 1

Answer:

Under Net assets method of purchase consideration , all assets are added and liabilities are deducted from the total of assets.

If any extra amount is paid against purchase consideration over and above the net assets, the balance amount is considered as payment for goodwill.

For example:

Plant & Machinery Rs.200000

Land & Building Rs.100000

Debtors Rs.50000

Stocks Rs.30000

---------------------

Total Assets Rs.380000

Less: Liabilities Rs.80000

--------------------

Net Assets Rs.300000

If purchase consideration is Rs.400000

Goodwill= Purchase Consideration-Net Assets

= Rs.400000−Rs.300000

Amount paid towards Goodwill is Rs.100000.

Explanation:

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