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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Hind Ltd acquired 80% of the equity shares of Surya Ltd on 1 April 2025 for ₹5,60,000. On that date Surya Ltd had equity share capital of ₹5,00,000, general reserve of ₹1,00,000 and a credit balance in the statement of profit and loss of ₹50,000. As per AS 21, what is the amount of goodwill or capital reserve arising on consolidation?

Goodwill of ₹40,000 arises on consolidation. Surya Ltd's net worth at acquisition is ₹6,50,000, of which Hind Ltd's 80% share is ₹5,20,000. Since the cost of investment of ₹5,60,000 is higher than this share, the excess of ₹40,000 is recognised as goodwill.

  1. AGoodwill of ₹40,000Correct
  2. BCapital reserve of ₹40,000
  3. CGoodwill of ₹1,60,000
  4. DGoodwill of ₹1,20,000

Explanation

Net worth of Surya Ltd at acquisition = 5,00,000 + 1,00,000 + 50,000 = ₹6,50,000. Hind Ltd's 80% share = ₹5,20,000. Cost of investment ₹5,60,000 exceeds this by ₹40,000, so goodwill arises. Using only share capital (₹4,00,000) would wrongly give ₹1,60,000.

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