Post journal entries for business acquisition and goodwill
Build a balanced set of acquisition entries for transferred assets, assumed liabilities, goodwill and the vendor consideration account.
Exam scope and assessment notes
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These lessons cover the listed merger and acquisition forms, business-versus-assets distinction, goodwill, consideration, journals, ledger accounts, new-entity statements and evaluation. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use the Topic 1.5 and 3.1 skills for identifying assets and liabilities, recording business transfers, preparing financial statements and separating a company's share capital from the former owners' equity.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Assets $90,000 and liabilities $25,000 are acquired for $80,000. What goodwill is indicated?
What you will learn
- Use a business-purchase account to record the agreed consideration
- Bring acquired assets and liabilities into the buyer's ledger
- Settle the vendor account using the agreed payment forms
Use a temporary purchase account to assemble the transfer
A clear ledger sequence first records the agreed business purchase consideration in a business-purchase or business-acquisition account, depending on the format used in the question. The buyer then records acquired assets, goodwill if calculated, and assumed liabilities against that account. Use the specific account names requested by the question.
If acquired assets total $162,000 and assumed liabilities are $22,000, the acquired net assets are $140,000. With consideration of $168,000, goodwill is $28,000. The acquisition entry debits assets $162,000 and goodwill $28,000, credits liabilities $22,000 and the purchase account $168,000.
Settle the vendor without breaking the balance
Credit the vendor or purchase consideration account when the price is agreed. When cash, shares and loan notes are issued, debit the vendor account and credit cash, share capital/share premium, or loan notes for the amounts settled. After the agreed settlement, the vendor account should close to zero unless a balance is explicitly deferred.
Check both sides of the acquisition independently: transferred assets less liabilities should equal net assets, while consideration less net assets should equal goodwill. The journal debits must equal credits. Do not put partner capital into the buyer's company ledger as though it were issued shares.
Pause and explain
A fully settled vendor account should normally have what balance after the purchase price is paid?
Worked example
A company acquires assets $162,000 and liabilities $22,000 for consideration $168,000. It settles with shares $120,000 and cash $48,000. Give the core debit and credit entries.
Show the worked solution
- Net assets = $162,000 − $22,000 = $140,000; goodwill = $168,000 − $140,000 = $28,000.
- Acquisition: debit assets $162,000 and goodwill $28,000; credit liabilities $22,000 and business-purchase/vendor $168,000.
- Settlement: debit vendor $168,000; credit share capital or issue accounts $120,000 and cash $48,000.
Answer The acquisition debits total $190,000 and credits total $190,000. The settlement also balances at $168,000.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A buyer takes assets $205,000 and liabilities $55,000 for $175,000, settled $100,000 shares and $75,000 cash. Calculate goodwill and outline acquisition and settlement entries.
Give me a hint
Calculate the net asset excess and use the vendor account as the link between acquisition and settlement.
Compare my reasoning
- Net assets = $205,000 − $55,000 = $150,000; goodwill = $175,000 − $150,000 = $25,000.
- Acquisition debits: assets $205,000 and goodwill $25,000; credits: liabilities $55,000 and vendor $175,000.
- Settlement debits vendor $175,000; credits shares $100,000 and cash $75,000.
Goodwill is $25,000. Each entry balances at $230,000 for acquisition and $175,000 for settlement.
Look for these in your work
- Goodwill calculated
- Acquisition entry balances
- Settlement entry balances
A company buys a business for $95,000. It takes over assets $120,000 and liabilities $35,000. It settles with loan notes $45,000 and cash $50,000. Write the debit and credit totals for the acquisition and settlement entries.
Give me a hint
Use the purchase price once, and check net assets and goodwill before totaling.
Compare my reasoning
- Net assets = $120,000 − $35,000 = $85,000; goodwill = $95,000 − $85,000 = $10,000.
- Acquisition debits = assets $120,000 + goodwill $10,000 = $130,000; credits = liabilities $35,000 + vendor $95,000 = $130,000.
- Settlement debits vendor $95,000; credits loan notes $45,000 and cash $50,000 = $95,000.
Acquisition entry totals $130,000 both sides; settlement totals $95,000 both sides.
Look for these in your work
- Goodwill correct
- Acquisition sides reconcile
- Settlement sides reconcile
A purchase journal balances only after the bookkeeper credits the vendor for $12,000 more than the signed consideration. What should be checked before accepting the entry?
Give me a hint
A balanced journal can still contain an incorrect amount.
Compare my reasoning
- Recheck the signed consideration and whether any deferred or contingent amount is included by the syllabus facts.
- Recheck the acquired asset and assumed-liability schedule and the resulting goodwill calculation.
- Do not use the vendor account as a plug; correct the source figures and then verify debits equal credits.
Balance alone does not prove accuracy. Verify the contract price, transferred balances and consideration forms; do not plug the vendor with an unsupported amount.
Look for these in your work
- Source price checked
- Net assets checked
- Balancing plug rejected
Common mistakes
- Debiting goodwill and also treating the same excess as a second asset
- Forgetting assumed liabilities in the credit side of acquisition entries
- Leaving the vendor account open after full payment
What can you explain now?
What must be true of each complete double-entry journal?
Compare with the explanation
Total debits equal total credits
Double-entry records the transaction on both sides; the journal must balance.
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Make it stick
Write the acquisition entry sequence and the settlement entry sequence in words.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.