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.