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CS Professional · Corporate Restructuring, Valuation and Insolvency · Accounting in Corporate Restructuring: Concept and Accounting Treatment

Mehta Ltd is absorbed by Nair Ltd in an amalgamation in the nature of purchase. Nair takes over assets agreed at ₹12,00,000 and liabilities of ₹2,00,000. The purchase consideration is ₹11,00,000, paid in Nair's equity shares. What does Nair record?

Nair records goodwill of ₹1,00,000. Net assets acquired are ₹10,00,000 (assets ₹12,00,000 less liabilities ₹2,00,000), and the consideration paid is ₹11,00,000. Under the purchase method, consideration in excess of net assets is goodwill.

  1. AGoodwill ₹1,00,000Correct
  2. BCapital reserve ₹1,00,000
  3. CCapital reserve ₹2,00,000
  4. DGoodwill ₹2,00,000

Explanation

Net assets taken over are ₹12,00,000 minus ₹2,00,000, which is ₹10,00,000. The consideration of ₹11,00,000 exceeds this by ₹1,00,000, which is goodwill. Ignoring liabilities would wrongly give a capital reserve of ₹1,00,000.

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