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If the purchase consideration is more than net worth, then which account will be debited for the difference amount?
- a)Capital Reserve A/c
- b)Asset A/c
- c)Goodwill A/c
- d)Vendor A/c
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
If the purchase consideration is more than net worth, then which accou...
Explanation:
When the purchase consideration is more than net worth, it means that the value paid for acquiring the business is greater than the value of its assets and liabilities. In such a case, the excess amount is recorded as goodwill.
Goodwill is an intangible asset that represents the reputation, brand value, customer loyalty, and other non-physical assets of the business. It is recorded as an asset in the balance sheet and can be amortized over a period of time.
Therefore, when the purchase consideration is more than net worth, the difference amount is debited to the Goodwill account. This is because the excess value paid is considered as the value of the goodwill of the business.
For example, if a business has a net worth of $100,000 and it is sold for $150,000, then the difference of $50,000 will be recorded as goodwill in the buyer's books of accounts.
Conclusion:
To sum up, when the purchase consideration is more than net worth, the difference amount is debited to the Goodwill account. This helps to reflect the true value of the business on the buyer's balance sheet. Goodwill is an important asset that represents the intangible value of the business and can have a significant impact on the buyer's financial statements.
When the purchase consideration is more than net worth, it means that the value paid for acquiring the business is greater than the value of its assets and liabilities. In such a case, the excess amount is recorded as goodwill.
Goodwill is an intangible asset that represents the reputation, brand value, customer loyalty, and other non-physical assets of the business. It is recorded as an asset in the balance sheet and can be amortized over a period of time.
Therefore, when the purchase consideration is more than net worth, the difference amount is debited to the Goodwill account. This is because the excess value paid is considered as the value of the goodwill of the business.
For example, if a business has a net worth of $100,000 and it is sold for $150,000, then the difference of $50,000 will be recorded as goodwill in the buyer's books of accounts.
Conclusion:
To sum up, when the purchase consideration is more than net worth, the difference amount is debited to the Goodwill account. This helps to reflect the true value of the business on the buyer's balance sheet. Goodwill is an important asset that represents the intangible value of the business and can have a significant impact on the buyer's financial statements.
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If the purchase consideration is more than net worth, then which account will be debited for the difference amount?a)Capital Reserve A/cb)Asset A/cc)Goodwill A/cd)Vendor A/cCorrect answer is option 'C'. Can you explain this answer?
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