Which account is credited if the value of net assets exceeds purchase consideration at the time of purchase of business?

When a business is purchased, the net assets (Assets - Liabilities) are compared with the purchase consideration paid.

Two situations can arise:

Net Assets > Purchase Consideration → Capital Reserve (credit balance)

Net Assets < Purchase Consideration → Goodwill (debit balance)

In the given question, net assets exceed purchase consideration, which means the purchasing company has acquired assets at a price lower than their actual value. This results in a profit.

Since this profit arises from a capital transaction (purchase of business), it is credited to Capital Reserve Account.

The journal entry would be:

Net Assets Account ... Dr

$\quad$ To Vendor's Account (Purchase Consideration)

$\quad$ To Capital Reserve (Balancing figure)

Why not other options?

General Reserve is created from revenue profits earned from regular business operations, not from capital transactions.

Vendor's Account is credited with the purchase consideration amount agreed to be paid to the vendor, not the difference.

Redemption Reserve is specifically created for redemption of preference shares or debentures, unrelated to business purchase.