Question

If vendors are issued fully paid shares of ₹1,25,000 in purchase consideration of net assets of ₹1,50,000, the balance of ₹25,000 will be credited to ______.

Options

• Statement of Profit and Loss

• Goodwill Account 

• Capital Reserve Account

• Profit and Loss Adjustment Account

Answer 1

If vendors are issued fully paid shares of ₹1,25,000 in purchase consideration of net assets of ₹1,50,000, the balance of ₹25,000 will be credited to Capital Reserve Account.

Explanation:

The difference is a benefit for the business when shares are sold to vendors for less than the net assets purchased (₹1,50,000 − ₹1,25,000 = ₹25,000). Since this gain results from the acquisition consideration rather than being a typical operating profit, it is treated as capital reserve.