Dirtworks Machinery Company is an authorized distributor of heavy machinery and equipment produced by Caterpillar, Inc. On February 15, 2009, Dirtworks purchased 10 backhoe loaders from Caterpillar under a one-year installment purchase plan with 12 payments of $15,000 each to be made at the beginning of each month. Dirtworks assumes that bank financing for the purchase could have been obtained at an interest rate of 5%.
Dirtworks sold two backhoe loaders on April 10, 2009 and one on September 21, 2009. Backhoe loaders are estimated to have a net realizable value of $120,000 per unit on December 31, 2009.
Required:
1. Identify the paragraph(s) in IFRS that would apply in determining the original cost of the backhoe loaders.
2. Determine the impact that the purchase and sale of backhoe loaders has on Dirtworks' 2009 net income.
3. Determine the amount at which the inventory of backhoe loaders would be reported on Dirtworks' December 31, 2009 balance sheet.