Question

Excess value of net assets over purchase consideration at the time of purchase of business is ______.

Options

• Credited to the Capital Reserve.

• Debited to the Goodwill Account.

• Credited to the General Reserve Account.

• Credited to the Vendor's Account.

Answer 1

Excess value of net assets over purchase consideration at the time of purchase of business is Credited to the Capital Reserve.

Explanation:

When a company purchases a business, if the net assets (assets – liabilities) exceed the purchase consideration, the difference is treated as a capital profit. Such capital profit is credited to Capital Reserve, since it is not a revenue profit and cannot be distributed as dividend.