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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Kiran Ltd purchases the business of Lakshya Ltd (amalgamation in the nature of purchase). Lakshya's assets taken over: fixed assets Rs 12,00,000 and current assets Rs 6,00,000. Liabilities taken over: Rs 4,00,000. Kiran Ltd pays Rs 16,00,000 in total (shares and cash). The amalgamation adjustment reserve is not applicable. What is the goodwill or capital reserve arising?

Goodwill of Rs 2,00,000 arises. Net assets taken over are assets of Rs 18,00,000 less liabilities of Rs 4,00,000, which is Rs 14,00,000. As the purchase consideration of Rs 16,00,000 exceeds this, the excess is recorded as goodwill under the purchase method.

  1. ACapital reserve Rs 2,00,000
  2. BGoodwill Rs 2,00,000Correct
  3. CGoodwill Rs 6,00,000
  4. DGoodwill Rs 8,00,000

Explanation

Net assets = 12,00,000 + 6,00,000 - 4,00,000 = Rs 14,00,000. Consideration of Rs 16,00,000 exceeds this by Rs 2,00,000, so goodwill arises. Rs 6,00,000 mistakenly ignores fixed assets, and Rs 8,00,000 ignores liabilities wrongly.

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