hawler is a small manufacturing company specialising in making alloy casings. its main item of plant is a furnace which was purchased on 1 october 20x1. the furnace has two components: the main body (cost $60,000 including the environmental provision – see below) which has a ten-year life, and a replaceable liner (cost $10,000) with a five-year life. the manufacturing process produces toxic chemicals which pollute the nearby environment. legislation requires that a clean-up operation must be undertaken by shawler on 30 september 20y1 (ten years after 20x1) at the latest.
hawler is a small manufacturing company specialising in making alloy casings. its main item of plant is a furnace which was purchased on 1 october 20x1. the furnace has two components: the main body (cost $60,000 including the environmental provision – see below) which has a ten-year life, and a replaceable liner (cost $10,000) with a five-year life. the manufacturing process produces toxic chemicals which pollute the nearby environment. legislation requires that a clean-up operation must be undertaken by shawler on 30 september 20y1 (ten years after 20x1) at the latest. shawler received a government grant of $12,000 relating to the cost of the main body of the furnace only. the following are extracts from shawler's statement of financial position as at 30 september 20x3 (two years after the acquisition of the furnace). carrying amount $ non-current assets furnace: main body 48,000 replaceable liner 6,000 current liabilities government grant 1,200 non-current liabilities government grant 8,400 environmental provision 18,000 (present value discounted at 8% per annum) required (i) prepare equivalent extracts from shawler's statement of financial position as at 30 september 20x4. (ii) prepare extracts from shawler's statement of profit or loss for the year ended 30 september 20x4 relating to the items in the statement of financial position. (b) on 1 april 20x4, the government introduced further environmental legislation which had the effect of requiring shawler to fit anti-pollution filters to its furnace within two years. an environmental consultant has calculated that fitting the filters will reduce shawler's required environmental costs (and therefore its provision) by 33%. at 30 september 20x4 shawler had not yet fitted the filters. required advise shawler as to whether they need to provide for the cost of the filters as at 30 september 20x4 and whether they should reduce the environmental provision at this date. (c) shawler has recently purchased an item of earth moving plant at a total cost of $24 million. the plant has an estimated life of ten years with no residual value, however its engine will need replacing after every 5,000 hours of use at an estimated cost of $7.5 million. the directors of shawler intend to
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