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WAEC Financial Accounting 2015 Question 38

Question 38

Purchase of Business

Mr. White acquired Mr. Black's business for GH¢410,000. The total assets were GH¢670,000 and liabilities amounted to GH¢320,000.
The double entry to record the goodwill in the books is debit

  1. A.Cash Account and credit Goodwill Account.
  2. B.Goodwill Account and credit Purchase of Business Account.
  3. C.Goodwill Account and credit Cash Account.
  4. D.Purchase of Business Account and credit Cash Account.
Show the answer and explanation

Answer: B (Goodwill Account and credit Purchase of Business Account.)

Explanation

Goodwill is an asset taken over, so it is debited, with the purchase of business account credited.