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CA Intermediate · Advanced Accounting · Amalgamation of Companies

Sundaram Ltd absorbs Venkat Ltd in an amalgamation that is in the nature of purchase. The net identifiable assets of Venkat Ltd taken over, at agreed values, are ₹8,70,000. Sundaram Ltd discharges the purchase consideration of ₹9,60,000 in full. How should the difference be treated in Sundaram Ltd's books?

The difference is goodwill of ₹90,000. In a purchase-type amalgamation, when the consideration of ₹9,60,000 is more than the net assets acquired of ₹8,70,000, AS 14 requires the excess to be recognised as goodwill. Capital reserve would arise only if net assets exceeded the consideration.

  1. AGoodwill of ₹90,000 on amalgamationCorrect
  2. BCapital reserve of ₹90,000
  3. CGoodwill of ₹9,60,000
  4. DGoodwill of ₹8,70,000

Explanation

Under the purchase method, consideration of ₹9,60,000 exceeds net assets acquired of ₹8,70,000 by ₹90,000. AS 14 treats an excess of consideration over net assets as goodwill. Capital reserve arises only when net assets exceed consideration, so that option reverses the direction.

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