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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Arjun Ltd acquired 70% of Bhima Ltd on 1 April 2025 for ₹9,00,000. On that date Bhima Ltd's equity share capital was ₹6,00,000 and its reserves were ₹4,00,000 (no other items). Bhima Ltd's net assets equal its equity plus reserves. What is the amount of goodwill (cost of control) arising on consolidation?

Goodwill is ₹2,00,000. Bhima Ltd's net assets at acquisition are ₹10,00,000, of which the parent's 70% share is ₹7,00,000. The investment cost of ₹9,00,000 exceeds this by ₹2,00,000, and an excess of cost over share of equity is recorded as goodwill.

  1. A₹2,00,000 (capital reserve)
  2. B₹2,00,000 (goodwill)Correct
  3. C₹3,00,000 (goodwill)
  4. D₹5,00,000 (goodwill)

Explanation

Net assets at acquisition = 6,00,000 + 4,00,000 = ₹10,00,000. Parent's share at 70% = ₹7,00,000. Cost ₹9,00,000 minus ₹7,00,000 = ₹2,00,000 goodwill. Using 100% of net assets, or treating it as capital reserve, would be wrong.

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