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WAEC Financial Accounting 2007 Question 43

Question 43

Partnership Admission, Retirement and Dissolution

Profit: 2003 Le40,000; 2004 Le48,000; 2005 Le62,000.
The value of goodwill calculated at 3 years purchase of annual profit is

  1. A.Le 450,000
  2. B.Le 150,000
  3. C.Le 50,000
  4. D.Le 48,000.
Show the answer and explanation

Answer: B (Le 150,000)

Explanation

Average profit = 150,000 ÷ 3 = 50,000; three years' purchase = 3 × 50,000 = Le150,000.