Which account is credited if the value of net assets exceeds purchase consideration at the time of purchase of business?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Capital Reserve
When the net assets taken over are worth more than the purchase consideration, the business has been bought for less than its worth. The excess is a capital profit, so it is credited to Capital Reserve; it is not a revenue profit to be kept in General Reserve, and nothing more is due to the vendor.
Note: This question is NCERT’s own (2026-27, Test your Understanding – II, question 6), but the answer key at the end of the book’s chapter prints “6 (c)”, that is, Vendors’ account. That is a misprint in the book’s key: the book’s own text, shown below, credits the difference to Capital Reserve, which is also the answer given by NTA.
NCERT (2026-27 edition): |