A ltd issued debentures of ₹4,40,000 in consideration of assets of ₹5,00,000 and liabilities of ₹1,00,000. The amount of ₹40,000 will be debited to which account?

Goodwill

The correct answer is option 3- Goodwill.

Assets = Liabilities +Purchase consideration
5,00,000 = 1,00,000 + 4,40,000
5,00,000 = 5,40,000
Both side must be equal.
The difference of 40,000 is on assets side so it is goodwill.

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 . 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.