Use the following information to answer this question A business whose assets consisted of stock N15,000 and debtors N8,000 was bought by issuing 20,000 ord...

Use the following information to answer this question

A business whose assets consisted of stock N15,000 and debtors N8,000 was bought by issuing 20,000 ordinary shares of N1 each at a premium of 20 percent.

The amount of goodwill was

Answer Details

Goodwill is the amount of money that a buyer is willing to pay over and above the net assets of a business. To calculate the goodwill in this scenario, we need to find the total value of the net assets and subtract it from the total cost of acquiring the business. The total value of the net assets of the business is the sum of the stock and debtors, which is N15,000 + N8,000 = N23,000. The total cost of acquiring the business is the value of the shares issued, which is 20,000 x N1.20 = N24,000. Therefore, the goodwill is the difference between the total cost of acquiring the business and the total value of its net assets, which is N24,000 - N23,000 = N1,000. Hence, the amount of goodwill is N1,000.