NECO Accounting 2022 Theory — Question 2

Model answer

(a) Goodwill is an intangible asset that cannot be seen or touched. It refers to the probability that existing customers will continue to patronize a business even after a change in ownership, arising from the reputation, customer loyalty and trust an organization has built up. It can also be seen as the excess of the purchase consideration paid for a business over the fair value of its net assets. (b) Items of recurrent expenditure for a local government (day-to-day running costs charged to the consolidated fund): 1. Purchase of drugs 2. Salaries and wages 3. Maintenance of vehicles 4. Repairs of roads 5. Repairs of public buildings 6. Stationery (c) Three types of inventory in a manufacturing account: 1. Raw materials: materials purchased by manufacturing companies from suppliers in their basic (unprocessed) form, used to produce finished goods. 2. Work-in-progress: partly finished or semi-finished goods; raw materials that have undergone some production processes but are not yet consumable as final products. The cost of production must be adjusted for the opening and closing work-in-progress. 3. Finished goods: goods that have completed all necessary manufacturing processes and are available for sale; their revenue contributes fully to the company's major operations.