On 1 October 20X5 Dearing Co acquired a machine under the following terms. $ Cost 1,050,000 Trade discount (applying to cost only) 20% Early Settlement discount taken(on the payable amount 5% of the based cost 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 On 1 October 20X7 Dearing Co 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 manufacturedusing the machine. (a) Explain how the non-current asset should be treated including amount to be recognised accordingly. *For part a, can you tell whether 5% discount should be taken or not and why? (b)Give 5 reasons, how should the Rs200,000 worth of new components be accounted for in accordance with IAS 16. (c) By 27 September 20x7 internal evidence had emerged suggesting that Dearing Co's machine was impaired. What could be the internal evidence for the impairment of the machine.
On 1 October 20X5 Dearing Co acquired a machine under the following terms. $ Cost 1,050,000 Trade discount (applying to cost only) 20% Early Settlement discount taken(on the payable amount 5% of the based cost 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 On 1 October 20X7 Dearing Co 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 manufacturedusing the machine. (a) Explain how the non-current asset should be treated including amount to be recognised accordingly. *For part a, can you tell whether 5% discount should be taken or not and why? (b)Give 5 reasons, how should the Rs200,000 worth of new components be accounted for in accordance with IAS 16. (c) By 27 September 20x7 internal evidence had emerged suggesting that Dearing Co's machine was impaired. What could be the internal evidence for the impairment of the machine.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Topic Video
Question
On 1 October 20X5 Dearing Co acquired a machine under the following terms.
$
Cost 1,050,000
Trade discount (applying to cost only) 20%
Early Settlement discount taken(on the payable amount 5%
of the based cost 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
On 1 October 20X7 Dearing Co 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 manufacturedusing the machine.
(a) Explain how the non-current asset should be treated including amount to be recognised accordingly.
*For part a, can you tell whether 5% discount should be taken or not and why?
(b)Give 5 reasons, how should the Rs200,000 worth of new components be accounted for in accordance with IAS 16.
(c) By 27 September 20x7 internal evidence had emerged suggesting that Dearing Co's machine was impaired. What could be the internal evidence for the impairment of the machine.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education