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WAEC Financial Accounting 1993 Question 7

Question 7

Purchase of Business

An excess of the value of the assets over the purchases consideration for acquisition of business is credited to

  1. A.general reserve
  2. B.capital reserve
  3. C.goodwill
  4. D.current asset
  5. E.share capital.
Show the answer and explanation

Answer: B (capital reserve)

Explanation

Paying less than the net assets are worth gives a gain (negative goodwill), credited to capital reserve.