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WAEC Financial Accounting 2013 Question 35

Question 35

Purchase of Business

When a business is purchased from a sole trader, the excess of the purchase price over the net assets is

  1. A.reserve.
  2. B.goodwill.
  3. C.freehold.
  4. D.valuation price.
Show the answer and explanation

Answer: B (goodwill.)

Explanation

Paying more than the value of the net assets taken over means paying for goodwill.