john Life Assurance Ltd and kay Insurance Ltd operate insurance business in US. Since their incorporation,john Life has been operating only life assurance business whereas kay Insurance has focused on only general insurance. Last year, management of kay announced its plans for setting up a new subsidiary to carry out life assurance business. Soon after that announcement, management of john Life met with management of kay Insurance and had discussions relating to kays intention to enter the life assurance business. Soon after, management of the two companies signed a deal for their mutual benefit. In the deal, management of kay agreed to delay implementation of its plan for setting up a life assurance business for the next 10 years in exchange for cash consideration of $2,000,000 from john Life. Few weeks to the end of last year, john Life paid the agreed compensation of $2,000,000 to kay Insurance. It has been one year since this deal was signed and both parties have complied with the terms of the deal.

Required:

1. Would you conclude that kayInsurance has assumed a liability? Explain.
2. Would you conclude that john Life has acquired an asset? Explain.
3. Would you conclude that the equity of kay Insurance has reduced because of the deal? Explain.
4. Would you conclude that john Life has incurred an expense? Explain.