A public company acquired the following assets and liabilities of a firm : Building Rs. 25,000, Machinery Rs. 15,000 Debtors Rs. 10,000, Stock Rs. 15,000 and Creditors Rs. 8,000. What will be the amount of goodwill or capital reserve if the purchase consideration of the business was Rs. 54,000. A. Rs. 3,000 goodwill B. Rs. 3,000 Capital reserve C. Rs. 11,000 Goodwill D. Rs. 11,000 Capital reserve

The correct answer is: C. Rs. 11,000 Goodwill

Goodwill is an intangible asset that arises when a company acquires another company for more than the fair value of its net assets. In this case, the purchase consideration of the business was Rs. 54,000, while the fair value of the net assets was Rs. 42,000 (25,000 + 15,000 – 10,000 – 15,000 – 8,000). Therefore, the amount of goodwill is Rs. 11,000.

Goodwill is not recorded on the balance sheet as an asset. Instead, it is recorded as a capital reserve. A capital reserve is a reserve that is created when a company acquires another company for more than the fair value of its net assets. The capital reserve is used to offset the difference between the purchase consideration and the fair value of the net assets.

The capital reserve can be used to offset future losses, to pay dividends, or to increase the company’s share capital.