A company purchased a business with net assets of ₹5,00,000 for a purchase consideration of ₹7,00,000. What was the balancing figure?

₹2,00,000 goodwill

The correct answer is option 1- ₹2,00,000 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 vendor’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.

So here, net assets = 5,00,000 and purchase consideration is 7,00,000
Difference is on assets side means it is goodwill (7,00,000 - 5,00,000) or ₹2,00,000.