Question 3

Ambili Ltd acquires a special cutting machine from Sruthi Ltd for the following consideration:

Cash: $10,000

Land: In the books of Ambili Ltd, the land is recorded at its cost of $50,000. It has a fair value of $60,000.

Ambili Ltd also agrees to assume the liability of Sruthi Ltds bank loan of $5,000 as part of the special cutting machine acquisition.

REQUIRED

(a) Calculate the acquisition cost of the special cutting machine.

(b) Provide the journal entries that would appear in Ambili Ltds books to account for the acquisition of the special cutting machine.