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Brown Ltd recently acquired a used machine for installation in its factory. The machine was acquired fro Green Ltd, with Brown Ltd giving a block
Brown Ltd recently acquired a used machine for installation in its factory. The machine was acquired fro Green Ltd, with Brown Ltd giving a block of land plus $10 000 cash in exchange for the machine. The lar had been acquired by Twister Ltd for $250 000 five years ago, but was considered to have a fair value Jay $400 000 at the date of exchange. The machine had a carrying amount in the records of Green Ltd of $430 000 at this date. Brown Ltd planned to use the machine in its main factory. The installation of the machine would require that it be expanded the installation area with suitable ventilation facilities for the machine to operate. The cost is expected to be $5000. However, when the machine is replaced in five years' time, the costs of removal of the machine are expected to be $1000. As the operation of the machine requires some technical knowledge, current staff will need to be trained for its use. As it has supplied the machine, Green Ltd has agreed to supply training at a cost of $250. Required The accountant of Brown Ltd is unsure of how to account for the acquisition of the machine and has asked for your advice. Prepare a report providing detailed advice to the accountant. The report should include the following: 1. 2. 3. 4. What are the recognition criteria for property, plant and equipment? How should items of property, plant and equipment be measured at point of initial recognition? How is cost determined in accordance with AASB116? Estimate the cost of the machine as per para 16 of AASB11
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