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CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Meera Ltd took over Nikhil Ltd on 1 April under the purchase method. Nikhil Ltd's assets taken over at agreed values were Rs 18,00,000 and liabilities taken over were Rs 4,00,000. Purchase consideration was Rs 12,00,000, discharged fully in equity shares of Meera Ltd. What is the amount of goodwill or capital reserve arising in Meera Ltd's books?

Net assets acquired equal Rs 14,00,000 (assets 18,00,000 less liabilities 4,00,000). As the purchase consideration is only Rs 12,00,000, the excess of Rs 2,00,000 of net assets over consideration is recorded as Capital Reserve, not goodwill, under the purchase method.

  1. ACapital Reserve Rs 2,00,000Correct
  2. BGoodwill Rs 2,00,000
  3. CGoodwill Rs 6,00,000
  4. DCapital Reserve Rs 6,00,000

Explanation

Net assets taken over = 18,00,000 - 4,00,000 = 14,00,000. Consideration is 12,00,000, which is less than net assets, so the excess of 2,00,000 is Capital Reserve. Goodwill of 2,00,000 results from reversing the comparison.

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