If the value of purchase consideration payable to the vendor is less than the value of the net assets taken over by the company, the difference will be credited to:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Capital Reserve
When a company takes over a business, it pays the vendor the purchase consideration. If that is less than the net assets taken over, the company has gained the difference. The gain arises from the purchase, not from trading, so it is a capital profit and is credited to Capital Reserve.
Why the other options are incorrect
Option (1) Reserve Capital — Incorrect. Reserve capital is a different idea: the part of the uncalled share capital that a company resolves to call only if it is wound up.
Option (3) Goodwill — Incorrect. Goodwill arises in the opposite case, when the consideration is more than the net assets taken over.
Option (4) Vendor — Incorrect. The vendor is credited with the purchase consideration he is to receive, not with the difference.
NCERT (2026-27 edition): |