In purchase method any excess of the amount of purchase consideration over the value of the net assets of the transferor company acquired by the transferee company should be recognised as goodwill in the financial statement of the transferee company. Any short fall should be shown as capital reserve. Goodwill should be amortised over period of five years unless a somewhat longer period can be justified. Example: Consider the following balance sheets of X Ltd. and Y Ltd. C32 Rs.000 Balance Sheet as on 31st March, 2006 Liabilities X Ltd. Y Ltd. Assets X Ltd. Y Ltd. Rs.000 Rs.000 Rs.000 Equity Share Capital 50,00 30,00 Land & Building 25,00 15,50 (Rs. 10 each) Plant & Machinery 32,50 17,00 14% Preference Share 22,00 17,00 Furniture & Fittings 5,75 3,50 Capital (Rs. 100 each) Investments 7,00 5,00 General Reserve 5,00 2,50 Stock 12,50 9,50 Export Profit Reserve 3,00 2,00 Debtors 9,00 10,30 Investment Allowance 1,00 Cash & Bank 7,25 5,20 Reserve Profit & Loss A/C 7,50 5,00 13% Debentures 5,00 3,50 (Rs. 100 each) Trade Creditors 4,50 3,50 Other Current Liabilities 2.00 1.50 99,00 66,00 99,00 66,00 X Ltd. takes over Y Ltd. on 1st April, 2006. X Ltd. discharges the purchase consideration as below: (1) Issued 3,50,000 equity shares of Rs. 10 each at par to the equity shareholders of Y Ltd. (i) Issued 15% preference shares of Rs. 100 each to discharge the preference shareholders of Y Ltd. at 10% premium. The debentures of Y Ltd. will be converted into equivalent number of debentures of X Ltd. The statutory reserves of Y Ltd. are to be maintained for 2 more years. Show the balance sheet of X Ltd. after amalgamation on the assumption that: (a) the amalgamation is in the nature of merger. (b) the amalgamation is in the nature of purchase