JAMB Principles of Accounts 2001 Question 38

Question 38

Purchase of Business

Where a company acquires controlling shares of another and the consideration is paid in cash, the entries in the books of the purchases are debit

  1. A.investment and credit cash
  2. B.investment and credit shares
  3. C.purchases and credit cash
  4. D.purchases and credit shares.
Show the answer and explanation

Answer: A (investment and credit cash)

Explanation

The shares bought are an investment: debit investment account and credit cash.