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.