On 1 July 2021, Ocean Grove Ltd acquired and installed an item of machinery for use in
Question:
On 1 July 2021, Ocean Grove Ltd acquired and installed an item of machinery for use in its manufacturing business. When acquired the machinery cost $1 200 000, had an estimated useful life of 10 years, and had an expected residual value of $200 000. Ocean Grove Ltd depreciates machinery on a straight-line basis over its useful life and uses the cost method. At 30 June 2023 the machinery had a carrying amount of $1 000 000.
At the end of the 2023 reporting period, the annual review of all machinery found that this particular item of machinery had incurred significant damage as a result of being rolled down a sand dune. As a result of the damage, the engineering department estimated the fair value less costs of disposal of the machinery at the end of the reporting period was $710 000. As the machinery can operate in a limited capacity, it could be expected to provide annual net cash flows of $105 000 for the next eight years. The expected residual value will remain unchanged. The management of Ocean Grove Ltd uses a discount rate of 8 per cent for calculations of this kind.
On 1 July 2021, Ocean Grove Ltd acquired and installed an item of machinery for use in its manufacturing business. When acquired the machinery cost $1 200 000, had an estimated useful life of 10 years, and had an expected residual value of $200 000. Ocean Grove Ltd depreciates machinery on a straight-line basis over its useful life and uses the cost method. At 30 June 2023 the machinery had a carrying amount of $1 000 000.
At the end of the 2023 reporting period, the annual review of all machinery found that this particular item of machinery had incurred significant damage as a result of being rolled down a sand dune. As a result of the damage, the engineering department estimated the fair value less costs of disposal of the machinery at the end of the reporting period was $710 000. As the machinery can operate in a limited capacity, it could be expected to provide annual net cash flows of $105 000 for the next eight years. The expected residual value will remain unchanged. The management of Ocean Grove Ltd uses a discount rate of 8 per cent for calculations of this kind.
Financial Accounting A User Perspective
ISBN: 978-0470676608
6th Canadian Edition
Authors: Robert E Hoskin, Maureen R Fizzell, Donald C Cherry