Neco 2020 Financial Accounting Question 32

Practice objective / multiple choice question 32 from the 2020 Neco Financial Accounting examination.

Neco 2020 Financial Accounting Objective / Multiple Choice Hard Difficulty
Question 32 NECO • 2020 • FINANCIAL_ACCOUNTING • objective

Three partners - A, B and C - share profits in the ratio 40\% : 35\% : 25\%. Their average profit for the last three years is \(\frac{180,000+210,000+150,000}{3}=₦180,000\). Goodwill is valued at two years' average profit. A new partner D is admitted for cash of ₦120,000 and a \(\frac{1}{5}\) share in future profits. Existing partners agree to share goodwill in their old profit‑sharing ratio. Upon admission, assets are re‑valued: building increases by ₦80,000 and equipment decreases by ₦20,000.\n\nDetermine (i) the amount of goodwill that D must pay in cash, and (ii) the new profit‑sharing ratio among A, B, C and D.

Answer Options

A. Goodwill payable by D = ₦80,000; new profit‑sharing ratio = 8:7:5:5
B. Goodwill payable by D = ₦72,000; new profit‑sharing ratio = 9:7:5:5
Correct Answer C. Goodwill payable by D = ₦72,000; new profit‑sharing ratio = 8:7:5:5
D. Goodwill payable by D = ₦60,000; new profit‑sharing ratio = 8:6:5:5
Correct Answer
C
Correct Option:
Goodwill payable by D = ₦72,000; new profit‑sharing ratio = 8:7:5:5

About This Question

This is Neco 2020 Financial Accounting Question 32. It is one of the objective questions from the 2020 Neco Financial Accounting examination.

Difficulty level: Hard .

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