ZXW Ltd buys a tractor from WQR Ltd by undertaking to pay a debt currently owed by WQR Ltd.This debt is recognised in WQR Ltd's accounts at $250 000 and it has a fair value of $230 000.ZXW Ltd incurs $10 000 legal fees in arranging this acquisition.ZXW Ltd would initially record this tractor at:
A)$230 000
B)$240 000
C)$250 000
D)$260 000

Question

Quizplus · Accepted Answer

ZXW Ltd would initially record the tractor at the fair value of $230,000, despite the fact that the debt they are paying off is recognised at $250,000 in the accounts of WQR Ltd. The legal fees incurred in arranging the acquisition are not included in the initial value of the tractor, but rather treated as an expense separately. Therefore, the best choice is option B, which reflects the fair value of the tractor.

ZXW Ltd Buys a Tractor from WQR Ltd by Undertaking