Prepare extracts from the statement of profit or loss

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Reference no: EM13557794

On 1 October 20X5 BROWN acquired a machine under the following terms.

Hours

$

Manufacturer's base price

1,050,000

Trade discount (applying to base price only)

20%

Early settlement discount taken (on the payable amount of the base cost

5%

only)

 

Freight charges

30,000

Electrical installation cost

28,000

Staff training in use of machine

40,000

Pre-production testing

22,000

Purchase of a three-year maintenance contract

60,000

Estimated residual value

20,000

Estimated life in machine hours

6,000

Hours used - year ended 30 September 20X6

1,200

- year ended 30

September 20X7

1,800

- year ended 30

September 20X8 (see below)

850

On 1 October 20X7 Brown decided to upgrade the machine by adding new components at a cost of $200,000. This upgrade led to a reduction in the production time per unit of the goods being manufactured using the machine. The upgrade also increased the estimated remaining life of the machine at 1 October 20X7 to 4,500 machine hours and its estimated residual value was revised to $40,000.

Required

Prepare extracts from the statement of profit or loss and statement of financial position for the above machine for each of the three years to 30 September 20X8.

Dearing is building a new warehouse. The directors are aware that in accordance with IAS 23 Borrowing costs certain borrowing costs have to be capitalized.

Explain the circumstances when, and the amount at which, borrowing costs should be capitalized in accordance with IAS 23.

Reference no: EM13557794

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