Skip to content

CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Vihaan Ltd acquired 80% of the equity shares of Kiran Ltd on 1 April. At the date of acquisition, Kiran Ltd's equity share capital was Rs 10,00,000 and its reserves were Rs 4,00,000. Vihaan Ltd paid Rs 12,00,000 for the investment. Using AS 21, what amount of goodwill arises on consolidation?

Goodwill of Rs 80,000 arises. Vihaan Ltd's share of Kiran Ltd's net worth at acquisition is 80% of Rs 14,00,000, which is Rs 11,20,000. The cost of investment, Rs 12,00,000, exceeds this share, so the excess of Rs 80,000 is goodwill under AS 21.

  1. AGoodwill of Rs 80,000Correct
  2. BCapital reserve of Rs 80,000
  3. CGoodwill of Rs 1,20,000
  4. DGoodwill of Rs 2,80,000

Explanation

Parent's share of equity at acquisition = 80% x (10,00,000 + 4,00,000) = 11,20,000. Cost of investment 12,00,000 exceeds this by 80,000, so goodwill is 80,000. Capital reserve is wrong because cost exceeds the share of net assets. Option Rs 2,80,000 uses 100% of net assets less cost wrongly.

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