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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Kiran Ltd acquires Lata Ltd by purchase. Lata's assets taken over at agreed values are Rs 25,00,000 and liabilities taken over are Rs 7,00,000. Kiran issues 1,20,000 equity shares of Rs 10 each at Rs 12 per share to Lata's shareholders and pays Rs 2,00,000 cash. What is the goodwill or capital reserve?

Net assets are Rs 18,00,000 and purchase consideration is Rs 16,40,000. Consideration is below net assets, so the difference of Rs 1,60,000 is a capital reserve arising on amalgamation.

  1. ACapital Reserve Rs 1,60,000
  2. BGoodwill Rs 1,60,000Correct
  3. CCapital Reserve Rs 3,60,000
  4. DGoodwill Rs 3,60,000

Explanation

Net assets = 25,00,000 - 7,00,000 = Rs 18,00,000. Consideration = 1,20,000 x 12 = 14,40,000 + 2,00,000 = Rs 16,40,000. Since consideration is less than net assets, the difference is 1,60,000 and is a capital reserve, so the key must be option 0.

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