Question

Tutorial question - Week 4 - Apple vs Samsung mini-case Q2. Using Apple, demonstrate how the differentiation strategy can be well implemented.

Answer 1

Part 1 Calculation of acquisition cost of the Gizmo machine: Cash Fair value of land Fair value of equipment Liability assumed Other associated costs (5000+2500+700) Acquisition cost of the Gizmo machine $ $ $ $ $ $ 20,000 140,000 23,000 30,000 8,200 221,200 O Part 2 Fair value $ 140,000 Gain (loss) Book value on exchange $ 100,000 $ 40,000 Asset Land Equipment (book value = 50000-20000) $ 23,000 $ 30,000 $ (7,000)

Credit $ $ $ Debit 221,200 20,000 7,000 Journal Entry Date General journal Gizmo Machine Accumulated depreciation on equipment Loss on exchange of equipment Cash (20000+8200) Land Gain on exchange of land Equipment Bank Loan Liability (To record acquisition of Gizmo Machine) $ 28,200 $ 100,000 $ 40,000 $ 50,000 $ 30,000 $ 650 Maintenance Expense Cash (To record payment of maintenance cost of the machine) $ 650 Part 3 Maintenance cost will not be included in the acquisition cost of the machine Only those costs are capitalized that increase the productivity of the asset. Such costs are non recurring in nature. Maintenance cost do not increase the productivity of the asset and are recurring in nature. Hence not capitalized.

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