Answer the questions from the passage-
XYZ Ltd. purchased assets worth Rs 3,00,000 from Blue Prints Ltd., and took over its liabilities of Rs 20,000 for a purchase consideration of Rs 3,15,000. XYZ Ltd., paid the purchase consideration by issuing 12% debentures of Rs 100 each at a premium of 5%.
Which account, and with what amount, will be debited for the excess amount of the net assets over purchase consideration at the time of the purchase of the business by XYZ Ltd.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Goodwill Rs 35,000
When a company buys a business, it first finds the net assets it takes over and compares them with the purchase consideration it agrees to pay. If it pays more than the net assets are worth, the extra is paid for the business’s reputation and earning power, so it is debited to Goodwill Account.
Assets taken over = Rs 3,00,000
Less: Liabilities taken over = Rs 20,000
Net assets = Rs 2,80,000
Purchase consideration = Rs 3,15,000
Excess paid = Rs 3,15,000 − Rs 2,80,000 = Rs 35,000, debited to Goodwill Account
Capital Reserve comes in only the other way round, when the purchase consideration is less than the net assets; the difference is then a capital gain and is credited, never debited.
Note: The question speaks of an excess of the net assets over the purchase consideration, but here the net assets (Rs 2,80,000) are less than the purchase consideration (Rs 3,15,000), and an excess of net assets would be credited to Capital Reserve, not debited. The only excess these figures give, and the only one that is debited, is that of the purchase consideration over the net assets, so the question is read that way and Goodwill Rs 35,000 is the answer.
NCERT (2026-27 edition):
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