Question

Jimmy Flex Ltd an Australian based company who entered into a long term manufacturing agreement with Space X LLC on 1 January 2020. Space X LLC will produce for Jimmy Flex Ltd a communications satellite, incorporating new laser technology at a fixed price of $USD 10M.

The new satellite was delivered to the company on 30 April 2021, whereby two months of testing was performed to ensure that the satellite will meet the needs of Jimmy Flex Ltd.

Once the testing is complete and the company is satisfied that the satellite is working payment of $USD 10M is due to Space X LLC for this amount on 31 July 2021.

1 January 2020 $USD 0.7011 = $AUD 1.00

30 June 2020 $USD 0.6872 = $AUD 1.00

30 April 2021 $USD 0.7775 = $AUD 1.00

30 June 2021 $USD 0.7787 = SAUD 1.00

31 July 2021 $USD 0.7815 = $AUD 1.00

Prepare the relevant journal entries to record the transactions for the tractor for the years 2019, 2020 and 2021 financial years. Ensure that you include all relevant narrations and tax effect entries where required. (11 marks)

(b) If a company chooses to use the cost method or the fair value method in order to measure the property, plant or equipment that it holds, can the company change the method that it uses after it has already implemented a method? Explain

(4 marks)