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JAMB Principles of Accounts 2001 Question 35

Question 35

Partnership Admission, Retirement and Dissolution

If a partner pays a premium of ₦500 for ⅕ share of profit, then the total value of goodwill is

  1. A.₦500
  2. B.₦2,000
  3. C.₦2,500
  4. D.₦3,000.
Show the answer and explanation

Answer: C (₦2,500)

Explanation

The premium is the new partner's share of goodwill: ⅕ of goodwill = 500, so goodwill = ₦2,500.