Question

If vendors are issued fully paid shares of ₹ 1,25,000 in purchase consideration of net assets of ₹ 1,50,000, the balance of ₹ 25,000 will be credited to ______. 

Options

• Statement of Profit and Loss

• Goodwill Account 

• Capital Reserve Account

• Profit and Loss Adjustment Account

Answer 1

If vendors are issued fully paid shares of ₹ 1,25,000 in purchase consideration of net assets of ₹ 1,50,000, the balance of ₹ 25,000 will be credited to Capital Reserve Account.

Explanation:

The difference is a benefit for the business when shares are sold to vendors for less than the net assets purchased (₹ 1,50,000 − ₹ 1,25,000 = ₹ 25,000). Since this gain results from the acquisition consideration rather than being a typical operating profit, it is treated as capital reserve.