Day: April 18, 2020

Joe is buying a firm whose only assets are valued as follows:

• Buildings £50,000
• Vehicles £15,000
• Fixtures £5,000
• Stock £40,000

The firm does not have any liabilities. He is to pay £140,000 for the firm.

This means that?

Select ONE answer:

1. He is paying £40,000 for goodwill.
2. The buildings he is acquiring are costing him £30,000 more than they are worth.
3. He is paying £30,000 for goodwill.
4. He has made an arithmetical mistake.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct – In the context of acquiring a business, goodwill is the difference between the price paid for the business as a whole and the sum of the values of the individual (net) assets. In this case, this is as follows: Price paid for the business £ 140,000 Values of the individual (net) assets (£50,000 + £15,000 + £5,000 + £40,000) £110,000. Therefore, Goodwill £30,000
4. Not correct

 

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