When the purchase consideration is more than net assets taken over, t…

When the purchase consideration is more than net assets taken over, the difference will be debited to

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Goodwill A/c

When a company buys a business, the purchase consideration is the price paid for it. If the price is more than the net assets taken over (assets less liabilities), the company has paid the excess for the business's reputation and earning power, so the excess is debited to Goodwill Account. In the opposite case, when the price is less than the net assets, the difference is a gain credited to Capital Reserve.

Option (1) Security Premium Reserve A/c — Incorrect. Securities Premium Reserve is credited with the premium on shares or debentures issued; it is not debited with the excess paid for a business.

Option (2) Capital Reserve A/c — Incorrect. Capital Reserve is credited when the purchase consideration is less than the net assets.

Option (4) Discount on issue of Debentures A/c — Incorrect. That account records the discount allowed on debentures issued, not the excess price paid for a business.

NCERT (2026-27 edition):
Issue of Debentures for Consideration other than Cash – “… In case of the whole business being taken over if the amount of debentures issued is more than the amount of the net assets taken over, the difference (excess) will be treated as value of goodwill and the same shall also be debited while passing the journal entry for the purchase of vender’s business (see Illustration 11). But if it is the other way round, i.e., the value of debentures is less than the value of the net assets taken over the difference will be credited to capital Reserve accounts (See Illustration 12).”