Gemma Limited acquired a number of assets for $400 000 cash. The fair values of the assets on date of acquisition were: building $320 000, furniture and fittings $80 000. The correct journal entry to record this acquisition is:

Question

Gemma Limited acquired a number of assets for $400 000 cash. The fair values of the assets on date of acquisition were: building $320 000, furniture and fittings $80 000. The correct journal entry to record this acquisition is:

BlackTom AI · Accepted Answer

The question describes Gemma Limited acquiring assets for 400,000 cash and provides the fair values of the individual assets: building 320,000 and furniture and fittings 80,000.

Option analysis:
- The appropriate accounting treatment for an asset acquisition funded by cash is to debit the asset accounts for the fair values of the assets acquired and credit cash for the total cash paid. Since the building’s fair value is 320,000 and furniture and fittings’ fair value is 80,000, the correct debits should be Dr Building 320,000 and Dr Furniture and fittings 80,000, with Cr Cash 400,000.

- If an option suggested any alternative treatment, such as debiting one asset only or using a different valuation (for example, debiting at cost rather than fair value, or misallocating amounts between assets), those would be incorrect because they would fail to reflect the asset components at their respective fair values and would not balance with the cash paid.

- If there were any options proposing the use of a single aggregate asset value (e.g., Dr Assets 400,000) without separating into Building and Furniture and fittings, that would be inconsistent with standard accounting practice which requires recognition of each identifiable asset at its fair value.

- If any option attempted to credit an asset account or to debit cash (i.e., reversing the normal debit for assets and credit for cash), it would contradict the fundamental double-entry principle of increasing assets with debits and decreasing cash with a credit.

In summary, the transaction should reflect the acquisition of two separate assets at their fair values, with a total cash outlay matching the sum of those fair values. The proposed entry aligns with this principle by debiting Building for 320,000, debiting Furniture and fittings for 80,000, and crediting Cash for 400,000.

22748 Financial Reporting and Analysis - Autumn 2025 Topic 3 Quiz

Gemma Limited acquired a number of assets for $400 000 cash. The fair values of the assets on date of acquisition were: building $320 000, furniture and fittings $80 000. The correct journal entry to record this acquisition is:

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