Question 1 i

Question 1

i.

Harris Ltd. exchanged a parcel of land with a carrying value of $15 million and fair value of $20

million, for some highly specialized machinery from Biden Corp. In addition, Harris Ltd. also

paid $5 million along with the land in a transaction holding commercial substance to obtain the

machinery.

Required:

What will be the cost of the specialized machinery in the financial statements of Harris Ltd.?

3 marks

ii.

Harris Ltd also recently imported an artificial intelligent machinery and incurred the following

costs:

$

List price (trade discount 12.5% on list price) 480,000

Haulage costs 5,500

Pre-production testing of machinery 25,000

Repair & maintenance contract for three years 48,000

Running of electrical cable for machinery 28,000

Special foundation for mounting machinery 9,000

Labor costs (direct) 15,000

Harris Ltd paid for the machinery within four weeks of the order, therefore, obtained an early

settlement discount of 3%.

2

Harris Ltd had wrongly specified the power loading of the original electrical cable to be installed

by the contractor. The cost of rectifying this error of $12,000 is included in the above figure of

$28,000.

The machinery is expected to have a useful life of 20 years. At the end of this period there will

be compulsory costs of $30,000 to dismantle the machinery and $6,000 to restore the site to

the original condition.

Required:

Determine the capitalized value of the artificial intelligent machinery in the financial statements

of Harris Ltd. Explain the treatment in the financials to be given to any cost or item not utilized

in computing the capitalized value of the machinery. 15 marks