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CS Executive · Corporate Accounting and Financial Management · Consolidation of Accounts

Meru Ltd acquired 60% of Kailash Ltd for Rs 7,50,000. At the date of investment Kailash Ltd had share capital Rs 6,00,000, general reserve Rs 3,00,000 and a profit and loss balance of Rs 1,00,000 (credit). Since then, Kailash Ltd's profit and loss balance has risen to Rs 4,00,000. What is the goodwill on consolidation under AS 21?

Goodwill is Rs 1,50,000. It is computed using equity at the date of investment: Rs 6,00,000 + Rs 3,00,000 + Rs 1,00,000 = Rs 10,00,000. Meru's 60% share is Rs 6,00,000, so cost of Rs 7,50,000 less Rs 6,00,000 gives goodwill. Later profits do not affect it.

  1. ARs 1,50,000Correct
  2. BRs 3,00,000
  3. CRs 30,000
  4. DRs 1,20,000

Explanation

Equity at the date of investment = 6,00,000 + 3,00,000 + 1,00,000 = 10,00,000. Parent's 60% = 6,00,000. Goodwill = 7,50,000 - 6,00,000 = 1,50,000. Post-acquisition profit is not used in the cost of control. Using the later equity of 13,00,000 would give 7,80,000 and a wrong figure.

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