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Question 2b

Delta is an entity which is engaged in the construction industry and prepares financial statements to 30 September each year. The financial statements for the year ended 30 September 2015 are shortly to be authorised for issue. The following events are relevant to these financial statements:

On 1 August 2015, Delta purchased a machine from a supplier located in a country whose local currency is the groat. The agreed purchase price was 600,000 groats, payable on 31 October 2015. The asset was modified to suit Delta’s purposes at a cost of $30,000 during August 2015 and brought into use on 1 September 2015. The directors of Delta estimated that the useful economic life of the machine from date of first use was five years. Relevant exchange rates were as follows:

– 1 August 2015 – 2·5 groats to $1.
– 1 September 2015 – 2·4 groats to $1.
– 30 September 2015 – 2·0 groats to $1.
– 31 October 2015 – 2·1 groats to $1.
(7 marks)

Required: 
Explain and show how the three events would be reported in the financial statements of Delta for the year ended 30 September 2015.

Note: The mark allocation is shown against each of the three events above.