IGCSE Accounting Paper-2: Specimen Questions with Answers 161 - 162 of 189

Question number: 161

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Amrita bought the business of Kareena for $345000. However, the net assets of Kareena were worth $360000. State one reason why Amrita paid lesser for the business than its net assets. (Marks 1)

Explanation

Amrita paid lesser for the business than its net assets because of Negative Goodwill of Kareena’s business.

Explanation:

  • Negative Goodwill arises when the price paid for the acquisition of a business is less than its net tangible assets.

  • This may happen when the concerned business witnesses a significant fall in the demand of its product due to sudden industry disruption.

  • For the purchaser, the negative goodwill is a capital profit and as such it is transferred to the Capital Reserve A/c.

Question number: 162

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Asim bought goods on credit from Siddharth. In Siddharth ledger, this transaction was entered on the credit side of Asim’s account. (Marks 1)

(i) Name the type of error committed by Siddharth.

Explanation

Error of Commission

  • Error of Commission is made when a transaction is entered on the wrong side of an account or on the right side but with a wrong amount.

  • In the given example, Asim is Siddharth’s debtor. So, under Siddharth ledger, the given transaction should be entered on the DEBIT side of Asim’s account.

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