Epsilon is an entity that prepares financial statements to 30 September each year. (a) Purchase of machine On 1 April 2018, Epsilon accepted delivery of a large and complex machine from an overseas supplier. The agreed purchase price for the machine was 20 million francs – the functional currency of the supplier. Under the terms of the agreement with the supplier 12·6 million francs was payable on 31 July 2018, with the balance of 7·4 million francs being payable on 30 November 2018. The payment due on 31 July 2018 was made in accordance with the terms of the agreement. Epsilon does not use hedge accounting. On 1 April 2018, Epsilon incurred direct costs of $250,000 in installing the machine at its premises. Although the machine was ready for use from 1 April 2018, Epsilon did not bring the machine into use until 30 April 2018. In April 2018 Epsilon incurred costs of $200,000 in training relevant staff to use the machine. The directors of Epsilon estimate that the machine is capable of being usefully employed in the business until 31 March 2023 and that it will have no residual value at that date. 

(b) Decommissioning On 31 March 2023, Epsilon will be legally required to decommission the machine using the original supplier. The directors of Epsilon estimate that the cost of safely decommissioning the machine on 31 March 2023 will be 3 million francs. Note: A relevant annual rate to be used in any discounting calculations is 8% and the appropriate discount factor is 0·681. 

(c) Impairment review During the final few months of the accounting period ending on 30 September 2018, Epsilon experienced difficult trading conditions. These difficulties did not affect the ability of Epsilon to operate as a going concern. In an impairment review of the machine at 30 September 2018, the directors of Epsilon estimated that the machine’s recoverable amount was $2·5 million. Relevant exchange rates (francs to $1) are as follows: – 1 April 2018 – 10 francs to $1. – 30 April 2018 – 9·5 francs to $1. – 31 July 2018 – 9 francs to $1. – 30 September 2018 – 8 francs to $1. – Average rate for the period from 1 April 2018 to 30 September 2018 – 9·2 francs to $1. 

Required: 

Explain and show with appropriate calculations how the above events would be reported in the financial statements of Epsilon for the year ended 30 September 2018. Marks will be awarded for BOTH figures AND explanations.

Answer rating: 100% (QA)

Property plant and equipment PPE refers to the non current assets of a company having a useful economic life of more than a year This means that the future economic benefits to be received spans over ... View the full answer