Question

1. Which of the following statement do not relate to budgeting?
(a)
It is a plan for future activities.
(b)
It helps the management decide how resources of a company will be used.
(c)
It helps management take corrective measures, if required.
(d)
Variances are irrelevant to budgeting.

2. Company A bought 5,000 shares of par value $10 of company B for $56,000. The fair value of assets of company B is $45,000. Calculate the amount of goodwill?
(a)
$5,000
(b)
$10,000
(c)
$11,000
(d)
$9,000

Answer 1

Answer- 1)-The following statement do not relate to budgeting = Variances are irrelevant to budgeting.

Explanation- The following statements are totally relate to the budgeting-

1)- Budgeting is totally a plan for future activities and goals.

2)- It also helps to the management to decide how resources are used in effectively and efficient manner.

3)- Budgeting helps to management to take corrective measures.

4)- Variances are totally relevant to budgeting.

Answer- 2)-The amount of goodwill is = $11000.

Explanation- Goodwill is the difference of excess of amount paid over the fair value of net identifiable assets.

Goodwill amount = Amount paid – Fair value of assets

= $56000 - $45000

= $11000