Corn Ferries plc operates a ferry service between Falmouth and Truro on the River Fal. The following transactions relating to non-current assets took place during the year ended 31 March 20X6: 1. The entity purchased a new ferry on 1 April 20x5 for 440 000 on credit. The ferry was fully tested by the manufacturer before delivery and was available for use from 1 April 20X5. It was however, only brought into use on 1 June 20x5, in time for the summer season. The following significant parts were identified: Hull Engine Interior fittings Cost 380 000 40 000 20 000 Estimated residual value 50 000 5 000 2 000 Estimated useful life 20 years 10 years 5 years Depreciation on all items of property, plant and equipment is provided on the straight-line method. 2. On 1 October 20X5, the ferry was serviced at a cost of 8 000. 3. On 31 December, during a New Year's Eve cruise, the engine caught fire and was completely destroyed. Fire crew managed to save the rest of the ferry from damage. No compensation was received from the insurers as the fire was held to be caused by negligence. The ferry was out of service and idle until 1 February 20x6 when a new engine was installed. The cost of the new engine amounted to 42 000 and a further 3 000 was paid to an engineer to install it. Both amounts were paid for in cash. The new engine has an estimated residual value of 6 000 and an estimated useful life of ten years. The following is an extract of income and expenses from the trial balance of Corn Ferries plc at 31 March 20X6: CORN FERRIES plc TRIAL BALANCE AT 31 MARCH 20X6 Dr Cr 1 800 000 Passenger fees Salaries Advertising Fuel and oil Depreciation Impairment loss Mooring costs Bad debts Legal fees Interest 220 000 28 000 35 000 ? ? 50 000 75 000 5 000 9 500 The bad debts arose from the non-payment from a tour operator that went into liquidation. Management consider this to be material. Required: a) Discuss, with reasons, how Corn Ferries plc should recognise the cost of the ferry and its significant parts, as set out in (1) above and the cost of servicing, as mentioned in (2) above. Your answer should refer to relevant definitions and recognition criteria in the Conceptual Framework and to IAS 16 Property, plant and equipment