CA Inter P1 · Chapter 11 · Question 3 of 10
Case: In an amalgamation in the nature of purchase, Rajat Ltd pays a purchase consideration of ₹40,00,000 for net assets of Sneh Ltd that are recorded at their fair value of ₹46,00,000. Under AS 14, Rajat Ltd should record:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Capital reserve of ₹6,00,000
Explanation
When the purchase consideration is less than the value of net assets acquired, the excess (46,00,000 - 40,00,000 = 6,00,000) is credited to capital reserve under AS 14. Goodwill arises only when consideration exceeds net assets, and the excess is not taken to profit and loss.
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