Problem
Omega prepares financial statements under international financial reporting standards. In the year ended 31 March 2007 the following transactions occurred:
On 1 April 2006 Omega began the construction of a new production line. Costs relating to the line are as follows:
Details $000
Costs of the basic materials (list price $ 12.5 million less a 20% trade discount) 10000
Recoverable sales taxes incurred not included in the purchase cost. 1000
Employment costs of the construction staff for the three months to 30 June 2006 (Note 1) 1200
Payments to external advisors relating to the construction. 500
Other overheads directly related to the construction (Note 2) 900
Expected dismantling and restoration costs (Note 3) 2000
Note 1
The production line took two months to make ready for use and was brought into use on 31 May 2006.
Note 2
The other overheads were incurred in the two months ended 31 May 2006. They included an abnormal cost of $ 300000 caused by a major electrical fault.
Note 3
The production line is expected to have a useful economic life of eight years. At the end of that time Omega is legally required to dismantle the plant in a specified manner and restore its location to an acceptable standard. The figure of $ 2 million included in the cost estimates is the amount that is expected to be incurred at the end of the useful life of the production plant. The appropriate rate to use in any discounting calculations is 5%. The present value of $ 1 payable in eight years at a discount rate of 5% is approximately $ 0.68.
Note 4
Four years after being brought into use, the production line will require a major overhaul to ensure that it generate economic benefits for the second half of its useful life. The estimated cost of the overhaul, at current prices, is $ 3 million.
Note 5
Omega computes its depreciation charge on a monthly basis.
Note 6
No impairment of the plant had occurred by 31 March 2007.
Task
Show extract of Statement of profit or loss and other comprehensive income and statement of financial position for year ended 31 March 2007.