Accounting Multiple Choice Question – 19 April 2020

The home of multiple choice questions for all your KS3, KS4 and KS5 Business Studies, Economics and Accounting requirements.

Accounting

John earns an annual net income of £19,500 from a photography business which he runs.

He has capital of £35,000 invested in this business. If he ceased running his own business and worked as an employee in another photographic business he would earn a salary of £11,000 per annum.

If he could invest his capital elsewhere in a project with the same degree of risk as his own business he could expect a return of 6.5% per annum.

If goodwill in this type of firm is valued at five years’ purchase of super-profits, the goodwill of John’s business is?

Select ONE answer:

  1. £31,125
  2. £37,500
  3. £40,225
  4. £42,500

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 1

  1. Correct – Current annual earnings £19,500, however alternative annual earnings = Salary £11,00 + Interest (£35,000 * 6.5%) £2,275 = Total £13,275. If Annual super-profit is £6,225, therefore, 5 years purchase = £31,125.
  2. Not correct
  3. Not correct
  4. Not correct

 

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Author: stuart001uk2014

Referral marketing, business, economics and accounting s​pecialist & corporate mentor

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