Purchase Consideration represents what Steel and Company is paying:
Cash paid = Rs. 50,000
Shares issued = 2,000 × Rs. 100 = Rs. 2,00,000
Total Purchase Consideration = Rs. 50,000 + Rs. 2,00,000 = Rs. 2,50,000
Net Assets Acquired represents what Steel and Company is receiving:
Assets acquired (Machine) = Rs. 4,80,000
Less: Liabilities taken over = Rs. 3,00,000
Net Assets = Rs. 1,80,000
Comparison:
Purchase Consideration paid (Rs. 2,50,000) > Net Assets received (Rs. 1,80,000)
When purchase consideration exceeds net assets, the difference represents Goodwill.
Goodwill = Rs. 2,50,000 - Rs. 1,80,000 = Rs. 70,000
(If purchase consideration were less than net assets, it would have been Capital Reserve instead)
Answer: Option 2 - Goodwill of ₹ 70,000