Skip to content

CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

On the date Pranav Ltd acquired 80% of the equity shares of Sanvi Ltd, it paid ₹9,00,000. Sanvi's equity share capital was ₹5,00,000 and its reserves were ₹3,00,000 on that date. At the consolidated balance sheet date, Sanvi's reserves stand at ₹4,50,000. What amount of goodwill arises on consolidation?

Goodwill is ₹2,60,000. It is the cost of investment, ₹9,00,000, less Pranav's 80% share of Sanvi's net worth on the acquisition date, 80% of ₹8,00,000 which is ₹6,40,000. Only pre-acquisition reserves are included, not those earned afterwards.

  1. A₹1,40,000
  2. B₹2,60,000Correct
  3. C₹1,00,000
  4. D₹5,00,000

Explanation

Goodwill is measured at the date of investment. Net worth at acquisition = 5,00,000 + 3,00,000 = 8,00,000, and Pranav's 80% share = 6,40,000. Goodwill = 9,00,000 − 6,40,000 = 2,60,000. Using reserves at the balance sheet date (80% of 9,50,000 = 7,60,000) gives 1,40,000, which wrongly includes post-acquisition profits.

Did you get it right without looking?

One question tells you little. A timed set on AS 21 Consolidated Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise AS 21 Consolidated Financial StatementsFree diagnostic mock

More AS 21 Consolidated Financial Statements questions