Reference no: EM133137218

Question - DP is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 2005. Details Of the cost Of the ship's components and their estimated useful lives are:

On 30 September 2013, no further capital expenditure had been incurred on the ship. In the year ended 30 September 2013, the ship had experienced a high level of engine trouble which had cost the company considerable lost revenue and compensation costs. The measured expired life of the propulsion system on 30 September 2013 was 30,000 hours. Due to the unreliability of the engines, a decision was taken in early October 2013 to replace the whole propulsion system at $140 million. The expected life of the new propulsion system was 50,000 hours and in the year ended 30 September 2014, the ship had used its engines for 5,000 hours.

At the same time as the propulsion system replacement. the company took the opportunity to do a limited upgrade to the cabin and entertainment facilities at $60 million and repaint the ship's fabric at $20 million. After upgrading the cabin and entertainment area fittings, it was estimated that their remaining life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 2013. All residual values can be taken as nil.

Required - Calculate the carrying amount of DP's cruise ship on 30 September 2014 and the related amounts which should be recognised as expenses for the year ended 30 September 2014. The answer should explain the treatment of each item.