Cheung Fat Co. Ltd (CF) is a watch manufacturer in Hong Kong. In the financial year ended 31 March 2017, the following transaction occurred.

On 1 April 2016, CF started to build a new assembly line for making smartwatches. The costs relating to this new assembly line are:

	$000
Cost of materials (list price $25 million less a 10% trade discount)	22,500
Salary of construction workers for three months to 30 June 2016 (note 1)	2,400
Other overheads directly related to the construction (note 2)	1,800
Payment to external consultants related to the construction	1,000
Expected dismantling and restoration costs (note 3)	4,000

Notes:

1 The new assembly line was completed and put to use on 1 July 2016.

2 The overheads were incurred during the construction of the assembly line. The overheads include an abnormal cost of $600,000 caused by a design fault.

3 The assembly line is expected to have a useful life of ten years. At the end of that time, CF is required to dismantle it and restore the site in accordance with the legal requirements. The $4,000,000 restoration cost is the estimated expense to be incurred at the end of the useful life of the assembly line. CF uses 5% as the discount rate.

4 CF believes that in five years time, the assembly line will need a major overhaul to ensure it generates economic benefits for the next five years. The estimated cost of the overhaul at 1 April 2016 was $6,000,000.

5 CF determines depreciation for its machines on a monthly basis.

6 CF applies the revaluation model of HKAS 16 to all of its machinery. On 31 March 2017, the fair value of this assembly line is $35,000,000.

Required:

a Determine the initial cost of the assembly line on 1 July 2016. Explain your rationale. (10 marks)

b Prepare accounting journal entries to record the depreciation and revaluation of the assembly line on 31 March 2017. (8 marks)

c Prepare extracts of the statement of financial position and statement of profit or loss for the year ended 31 March 2017 for the manufacturing line. (7 marks)