Neco 2023 Financial Accounting Question 42

Practice objective / multiple choice question 42 from the 2023 Neco Financial Accounting examination.

Neco 2023 Financial Accounting Objective / Multiple Choice Hard Difficulty
Question 42 NECO • 2023 • FINANCIAL_ACCOUNTING • objective

Three partners A, B and C share profits in the ratio 3:2:1. Their opening capital balances are A = \(120{,}000\) ₦, B = \(80{,}000\) ₦, C = \(50{,}000\) ₦. The partnership earned a net profit before interest of \(84{,}000\) ₦ for the year. Interest on capital at 10\% per annum is charged on the opening capitals. On 1 July a new partner D is admitted, contributing \(30{,}000\) ₦ for a 20\% share in the partnership. Goodwill is valued at two years' average profit (average profit after interest). No goodwill has been recorded previously. Calculate: a) The interest on capital for each existing partner for the whole year. b) The profit share of each existing partner after interest. c) The total goodwill to be recognised and the amount to be credited to each existing partner's capital account. d) The new capital balances of A, B, C and D immediately after D's admission.

Answer Options

Correct Answer A. Interest: A 12,000 ₦; B 8,000 ₦; C 5,000 ₦.\nProfit after interest: 59,000 ₦; profit shares - A 29,500 ₦, B 19,667 ₦, C 9,833 ₦.\nGoodwill: 118,000 ₦; goodwill credited - A 59,000 ₦, B 39,333 ₦, C 19,667 ₦.\nNew capitals - A 208,500 ₦, B 139,000 ₦, C 79,500 ₦, D 30,000 ₦.
B. Interest: A 13,000 ₦; B 8,000 ₦; C 5,000 ₦. Profit after interest: 58,000 ₦; profit shares - A 28,500 ₦, B 19,333 ₦, C 10,167 ₦. Goodwill: 115,000 ₦; goodwill credited - A 57,500 ₦, B 38,333 ₦, C 19,167 ₦. New capitals - A 206,500 ₦, B 138,333 ₦, C 79,667 ₦, D 30,000 ₦.
C. Interest: A 12,000 ₦; B 8,000 ₦; C 6,000 ₦. Profit after interest: 58,000 ₦; profit shares - A 29,000 ₦, B 19,333 ₦, C 9,667 ₦. Goodwill: 116,000 ₦; goodwill credited - A 58,000 ₦, B 38,667 ₦, C 19,333 ₦. New capitals - A 207,000 ₦, B 138,667 ₦, C 79,167 ₦, D 30,000 ₦.
D. Interest: A 12,000 ₦; B 9,000 ₦; C 5,000 ₦. Profit after interest: 60,000 ₦; profit shares - A 30,000 ₦, B 20,000 ₦, C 10,000 ₦. Goodwill: 120,000 ₦; goodwill credited - A 60,000 ₦, B 40,000 ₦, C 20,000 ₦. New capitals - A 210,000 ₦, B 140,000 ₦, C 80,000 ₦, D 30,000 ₦.
Correct Answer
A
Correct Option:
Interest: A 12,000 ₦; B 8,000 ₦; C 5,000 ₦.\nProfit after interest: 59,000 ₦; profit shares - A 29,500 ₦, B 19,667 ₦, C 9,833 ₦.\nGoodwill: 118,000 ₦; goodwill credited - A 59,000 ₦, B 39,333 ₦, C 19,667 ₦.\nNew capitals - A 208,500 ₦, B 139,000 ₦, C 79,500 ₦, D 30,000 ₦.

About This Question

This is Neco 2023 Financial Accounting Question 42. It is one of the objective questions from the 2023 Neco Financial Accounting examination.

Difficulty level: Hard .

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