Accountancy Part AIssue and Redemption of Debentures

At the time of purchase of a business, if net assets are in excess of…

At the time of purchase of a business, if net assets are in excess of purchase consideration, the excess money will be ......... ?

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Credited to Capital Reserve Account.

Note: The same question appears in NCERT’s own Test your Understanding on debentures, but the book’s chapter-end answer key prints (c) Vendors’ account for it. That is a misprint: the book’s own text, quoted below, credits the excess of net assets over the purchase consideration to Capital Reserve, which is also the answer given by NTA.

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).”