Question
Company A takes over Company B on 1st April 2024. The
Balance Sheet of Company B shows the following: • Share Capital: ₹10,00,000 (1,00,000 shares of ₹10 each fully paid) • General Reserve: ₹2,00,000 • Profit & Loss A/c (Credit balance): ₹1,00,000 • 12% Debentures: ₹3,00,000 • Sundry Assets: ₹16,00,000 The agreed Purchase Consideration (PC) was as follows: • For every 2 shares in B, shareholders receive 3 shares of A (FV ₹10, issued at ₹12, i.e., 20% premium). • In addition, shareholders of B receive cash of ₹2,00,000. • A agrees to discharge the debentures of B at a premium of 5%. You are required to determine the amount of Goodwill or Capital Reserve in the books of A Ltd.Solution
1. Purchase Consideration (PC): o Shares issued: B has 1,00,000 shares. For every 2 → 3 of A. So shares issued = 1,50,000. o Value = 1,50,000 × 12 = ₹18,00,000 o Cash = ₹2,00,000 o Total PC = ₹20,00,000 2. Net Assets of B: o Sundry Assets = ₹16,00,000 o Less Debentures (discharged at 5% premium = 3,00,000 × 1.05 = 3,15,000) o Net Assets = 16,00,000 – 3,15,000 = ₹12,85,000 3. Goodwill/Capital Reserve: o PC – Net Assets = 20,00,000 – 12,85,000 = ₹7,15,000 (Goodwill)
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