The company recently acquired a new underground mining drill for their mine site located in North Queensland. The new drill was delivered on 15 May 2021.

Th purchase price of the new drill was $1 055 500. Other costs associated with the acquisition of the new drill were:

• Costs of testing the new drill, incurred prior to the drill being ready for use $27 500
• Allocation of general overhead costs $7 500
• Transport Costs $13 750
• Modification costs incurred prior to the drill being ready for use $3 500
• Five-year maintenance contract $4 500 for the period 15 May 2021 to 15 May 2026.

The testing and modification costs remain outstanding at 31 May 2021.

The purchase consideration consisted of:

• Loan of $725 000 with Bendigo Bank
• The exchange of old mining machine (Cost $750 900, carrying value at 15 May 2021 is $125 750, Fair Value is $100 250)
• The issue of 5 000 shares. The market price of the shares at the time of issue was $5.00 per share
• The balance (excluding testing and modification costs) was paid in cash.

Required:

1. Advise the appropriate accounting policy choice the company should adopt in relation to the measurement of the new drill ; and
2. Prepare the journal entry required to record the acquisition of the new mining drill.