Question

Madhur and Co. acquired the business of Vishu for a purchase consideration of ₹ 11,00,000 which was paid by cheque. The assets and liabilities taken over was as follows:

Particulars	Book Value (₹)	Agreed Value (₹)
Furniture	50,000	40,000
Debtors	2,50,000	Subject to Provision for Doubtful Debts @ 4%
Stock	10,00,000	7,20,000
Bank Overdraft	20,000	20,000
Creditors	1,80,000	1,80,000

You are required to assertain the value of goodwill and pass necessary Journal entries.

Answer 1

In the books of Madhur and Co.
Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Furniture A/c     ...Dr.		40,000	-
	Debtors A/c     ...Dr.		2,40,000	-
	Stock A/c     ...Dr.		7,20,000	-
	Goodwill A/c     ...Dr.		3,00,000	-
	To Bank Overdraft A/c		-	20,000
	To Creditors A/c		-	1,80,000
	To Vishu A/c		-	11,00,000
	(Being business of Vishu taken over and the difference treated as goodwill.)
2.	Vishu A/c     ...Dr.		11,00,000	-
	To Bank A/c		-	11,00,000
	(Being purchase consideration paid by cheque.)

Calculate Agreed Value of Net Assets:

Particulars	Book Value (₹)	Agreed Value (₹)
Furniture	50,000	40,000
Debtors	2,50,000	2,50,000 – 4% = 2,40,000
Stock	10,00,000	7,20,000
Total Assets	-	10,00,000
Less: Bank Overdraft	20,000	(20,000)
Less: Creditors	1,80,000	(1,80,000)
Net Assets taken over	-	8,00,000

Calculate Goodwill:

Purchase Consideration paid = ₹ 11,00,000

Net Assets taken over = ₹ 8,00,000

Goodwill = Purchase Consideration – Net Assets

= 11,00,000 – 8,00,000

= ₹ 3,00,000