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WAEC Financial Accounting 2020 Question 49

Question 49

Purchase of Business

The excess of net assets acquired over purchase consideration is

  1. A.capital reserve.
  2. B.goodwill.
  3. C.purchase price.
  4. D.discount.
Show the answer and explanation

Answer: A (capital reserve.)

Explanation

When less is paid than the net assets are worth, the gain is a capital reserve (negative goodwill).