Question

Hitanshi Ltd.‘s purchase consideration is Rs.12,345 and Net Assets Rs.3,568, then...........

(A) Goodwill Rs. 8,777

(B) Capital Reserve Rs. 8,777

(C)Goodwill Rs. 15,913

(D) Capital Reserve R​

Answer 1

Answer:

(D) Capital Reserve R

Answer 2

Hitanshi Ltd.‘s purchase consideration is Rs.12,345 and Net Assets Rs.3,568, then (A) Goodwill Rs8777

• Purchase consideration means the amount to be paid by the purchasing company ( buyer ) to the vendor company (seller) for taking over the assets and liabilities of the vendor company
• Net assets means total fixed assets + total current assets -( total current liability+ total long term liabilities)
• When purchase consideration is greater than net assets the excess is treated as Goodwill
• When purchase consideration is less than net assets the difference is transferred to the capital reserve account
• In the question, purchase consideration=Rs12345 net assets= Rs3568 so Goodwill=12345-3568=Rs8777