Skip to content

CA Intermediate · Advanced Accounting · AS 14 Accounting for Amalgamations

Under the purchase method, Mehta Ltd takes over Joshi Ltd. It takes over fixed assets agreed at ₹12,00,000 and current assets at ₹6,00,000, and assumes liabilities of ₹4,00,000. The purchase consideration is 80,000 equity shares of ₹10 each, issued at ₹20 per share, plus ₹1,00,000 in cash. What amount of goodwill arises on amalgamation?

Goodwill is ₹3,00,000. Net assets taken over are ₹14,00,000 (₹18,00,000 assets less ₹4,00,000 liabilities). The purchase consideration is ₹16,00,000 for the shares plus ₹1,00,000 cash, or ₹17,00,000. The excess of consideration over net assets is goodwill under the purchase method.

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

Explanation

Net assets taken over are 12,00,000 + 6,00,000 − 4,00,000 = ₹14,00,000. The consideration is 80,000 × ₹20 = ₹16,00,000 plus ₹1,00,000 cash = ₹17,00,000. Goodwill is 17,00,000 − 14,00,000 = ₹3,00,000. ₹2,00,000 is wrong because it leaves out the cash component.

Did you get it right without looking?

One question tells you little. A timed set on AS 14 Accounting for Amalgamations shows your real accuracy, how long you take and where you lose marks.

Practise AS 14 Accounting for AmalgamationsFree diagnostic mock

More AS 14 Accounting for Amalgamations questions