You are a Chartered Accountant working for Exp Limited (Exp). Exp signed a contract on 1 January 20×8 to purchase a new machine. The value of the contact is 10 million, payable in installments:
- 20% on signing of the contract
- 30% in six months
- 30% on delivery (31 March 20×9)
- 20% 1 month after delivery
The bank loan was signed on the 1 February 20×8, Terms of the bank loan are:
- Amount borrowed $ 10 million
- Term: 3 years
- Fixed interest rate annually : 6%
Exp decided to fund the purchase by borrowing $10 million from the bank. In addition, Exp expect to spend extra $100,000 on installation and $50,000 on training staff using the new machine. Exp also decided to spend $10,000 on marketing to advise clients about its new capacity. The delivery cost is $10,000. Exp has a 30 June year end.
What is the cost of the machine that Exp should recognize ?