Large Mart has recently completed the construction of a new computer factory in Armidale. The company utilised its own workforce and several pieces of machinery/equipment specifically acquired for the construction project. The project spanned a total of 18 months, during which Large Mart staff was consistently involved. The Large Mart Finance Department has highlighted certain expenditures that took place over the course of these 18 months, but is unsure of how to appropriately account for these in the company books. The CFO requires your assistance with the following:

- Total depreciation of the “Machinery/Equipment” account of $60,000. With $40,000 of this amount being for the depreciation of machinery/equipment that was specifically acquired for the project and that was not used in any other Large Mart activities.

- Total interest payments made by Large Mart during the construction of the factory of $150,000. Of this amount $20,000 relate to a loan (with an overall loan value of $300,000 and a repayment duration of 5 years) that Large Mart took out to finance components used in the factory’s production line. The remaining interest payments during this time related to a different loan that was used to purchase an office building in a previous year.

The CFO is not sure how to treat these expenditures in the books of Large Mart, and has asked you to investigate, and write a report about, the following questions:

a) What are the accounting requirements for reporting entities in Australia regarding the accounting treatment(s) of the depreciation that was calculated by the Finance Department (your report should NOT discuss different methods to calculate depreciation!!!)? In your answer you should discuss (1) what relevant requirements exist in relation to the accounting treatment(s) of all components of the depreciation calculated by the Finance Department, and (2) how Large Mart should apply these requirements in the given situation.

b) What are the accounting requirements for reporting entities in Australia regarding the accounting treatment(s) of all components of the interest expenditures calculated by the finance department? In your answer, you should discuss (1) what relevant requirements exist in relation to the accounting treatment(s) of all components of the interest calculated by the Finance Department, and (2) why the accounting treatment(s) you have identified are required in the given situation.

Kindly write the answer 

Answer rating: 100% (QA)

Certainly heres a brief report on the accounting treatment of the depreciation and interest expenditures for Large Mart in Australia Report on Account... View the full answer