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WAEC Financial Accounting 2000 Question 16

Question 16

Purchase of Business

XYZ Enterprises bought ABC Enterprises by issuing 30,000 ordinary shares of N1 each at a discount of 5%. The assets of ABC Enterprises are Stock N18,000, Debtors N11,000
Capital reserve was

  1. A.N1,500
  2. B.N1,000
  3. C.N500
  4. D.N150.
Show the answer and explanation

Answer: C (N500)

Explanation

Net assets 18,000 + 11,000 = 29,000 − consideration 28,500 = N500 capital reserve.