Question

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

Options

• General reserve

• Capital reserve

• Vendors’ account

• Both General Reserve and Capital Reserve.

Answer 1

Excess value of net assets over purchase consideration at the time of purchase of business is credited to capital reserve.

Explanation:

In the financial statement of the transferee company, any excess of acquisition consideration over the net assets of the transferor company should be reported as goodwill. The difference between the consideration and the value of the net assets bought should be recognised as a capital reserve.