Rubber Ltd. purchased 70% of shares of Tyre Ltd. on 31/03/2024 for 4,05,000. The following is the position of Tyre Ltd. as on that date: Particulars…

Calculation of capital reserve/goodwill at the date of acquisition Case (i) it is assumed Dividend is paid out of post-acquisition profits Total dividend paid is 25,000 hence dividend received by Rubber will be credited to P & L. Rubber Ltd.'s share of dividend = 25,000 X 70% = 17,500 Goodwill on consolidation (at the date of acquisition): ₹ ₹ Cost of shares 4,05,000 Less: Face value of capital i.e. 70% of capital 5,00,000 3,50,000 Add: Share of capital profits [70,000X 70%] 49,000 (3,99,000) Goodwill 6,000 Case (ii) it is assumed Dividend is received out of pre-acquisition profits. Since dividend received is for pre-acquisition period, it has been reduced from the cost of investment in the subsidiary company. Goodwill on consolidation (at the date of acquisition): ₹ Cost of shares 4,05,000 Less: dividend received (17,500) 3,87,500 Less: Face value of capital i.e. 70% of capital 5,00,000 3,50,000 Add: Share of capital profits [70,000 X 70%] 49,000 (3,99,000) Capital reserve 11,500