Accounting 9706 · AS & A Level · Business acquisition and merger

Business acquisition and merger — practice question

Alex and Brown were partners, and they shared profits and losses in the ratio of $3:2$ respectively. C Limited bought the partnership business on 1 November 2016.
(a)[1]

State what the term ‘goodwill’ means.

(b)[4]

Calculate the amount of goodwill paid for by C Limited.

(c)[4]

Calculate the total profit on realisation due to the partners.

(d)[11]

Prepare the partners’ capital accounts on closing the business.

(e)[5]

Discuss the benefits to C Limited, apart from a rise in profit, of buying Alex and Brown’s business.

Worked solution & mark scheme

This 25-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Goodwill is the amount paid above the fair value of net assets” …

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