Use the information below to answer this question.Dangote acquired Dantata’s business for ₦350,000. The total asset work were ₦820,000 and liabilities amoun...

Use the information below to answer this question.Dangote acquired Dantata’s business for ₦350,000. The total asset work were ₦820,000 and liabilities amounted to ₦640,000The double entry to record the goodwill in the books is debt

Answer Details

The correct double entry to record the goodwill in the books is: "goodwill account and credit purchase of business account." When a business is purchased for a price that exceeds the fair value of its identifiable assets and liabilities, the excess amount is called "goodwill." Goodwill represents the value of the business's reputation, customer base, and other intangible assets that are not recognized on the balance sheet. In this case, Dangote acquired Dantata's business for ₦350,000, which is less than the total asset worth of ₦820,000 but more than the liabilities of ₦640,000. This means that there is goodwill of ₦170,000 (₦820,000 - ₦640,000 - ₦350,000) associated with the acquisition. To record the goodwill in the books, the goodwill account should be debited for ₦170,000, and the purchase of business account should be credited for ₦350,000 (the purchase price). This entry recognizes the value of the goodwill and the cost of acquiring the business. Therefore, is the correct answer.