Taking the data of Problem 1, consider that BL purchased 40% equity of HL at a cost of ₹3,00,000 and there was no difference between the book value and fair value of the assets. Then show how goodwill is to be recognized. If we further assume that the fair value of net assets increased by ₹1,00,000 over the given net book value of asset ₹6,00,000, then show how goodwill is to be recognized.

Data from Problem 1

On April 1, 2010, Bush Limited (BL) purchased 40% equity shares of Huss Limited (HL) at a cost of ₹2,40,000. The equity of HL on this date comprised

(a) Equity share capital ₹3,00,000,

(b) Securities premium ₹2,00,000,

(c) Reserve and surplus ₹1,00,000.

During the year 2010–11, GHL earned a net profit of ₹1,00,000 out of which 60% was distributed as dividend among equity shareholders. Show how BL should account for its investment in HL.