Question

Question 3 (Note this question is from the Week 6 Tutorial) (a) Explain the ways in which a company may expand by obtaining new assets. (1 mark) (b) Jamuna River Ltd purchased a parcel of assets and liabilities comprising a business directly from Lyneham Pty Ltd. The parcel of assets, measured at net fair value, consisted of: Balance of Accounts: ($)___

Plant 150,000

Land 240,000

Vehicles 120,000

Accounts receivable 30,000

Accounts payable (48,000)

Total 492,000

Required: Prepare journal entries to record the acquisition by Jamuna River Ltd, assuming that:

(i) The cost of acquisition was $600,000 cash.

(ii) The cost of acquisition was $432,000 cash.

Answer 1

(a) The ways in which a company may expand by obtaining new assets are:

1. Due to acquiring new assets, the organization can produce more quantity, which will bring about increased sales and increased profitability which prompts to the expansion of the company.

2. With the assistance of new assets the organization can create new items or provide new services, which will bring about enhancement into new items line or benefits, and give new client base and more market share, which will boost the overall income of the company and prompts the extension of the organization.

(b)

(i)

	Amount ($)	Amount ($)
Account Titles	Debit	Credit
Plant	1,50,000
Land	2,40,000
Vehicles	1,20,000
Accounts receivable	30,000
Goodwill (Balancing Figure)	1,08,000
To Accounts payable		48,000
To Lyneham Pty Ltd		6,00,000
(Business purchased from Lyneham Pty Ltd)
Lyneham Pty Ltd	6,00,000
To Cash		6,00,000
(Cash paid to Lyneham Pty Ltd for acquisition)

(ii)

	Amount ($)	Amount ($)
Account Titles	Debit	Credit
Plant	1,50,000
Land	2,40,000
Vehicles	1,20,000
Accounts receivable	30,000
To Accounts payable		48,000
To Lyneham Pty Ltd		4,32,000
To Capital Reserve (Balancing Figure)		60,000
(Business purchased from Lyneham Pty Ltd)
Lyneham Pty Ltd	4,32,000
To Cash		4,32,000
(Cash paid to Lyneham Pty Ltd for acquisition)