Question 2a

Epsilon is an entity which prepares financial statements to 30 September each year.

(a) Purchase of machine
On 1 April 2018, Epsilon accepted delivery of a large and complex machine from an overseas supplier. The agreed purchase price for the machine was 20 million francs – the functional currency of the supplier. Under the terms of the agreement with the supplier 12·6 million francs was payable on 31 July 2018, with the balance of 7·4 million francs being payable on 30 November 2018. The payment due on 31 July 2018 was made in accordance with the terms of the agreement. Epsilon does not use hedge accounting.

On 1 April 2018, Epsilon incurred direct costs of $250,000 in installing the machine at its premises. Although the machine was ready for use from 1 April 2018, Epsilon did not bring the machine into use until 30 April 2018. During April 2018 Epsilon incurred costs of $200,000 in training relevant staff to use the machine.

The directors of Epsilon estimate that the machine is capable of being usefully employed in the business until 31 March 2023, and that it will have no residual value at that date. (8 marks)

Required:
Explain and show with appropriate calculations how the above events would be reported in the financial statements of Epsilon for the year ended 30 September 2018. Marks will be awarded for BOTH figures AND explanations.

Relevant exchange rates (francs to $1) are as follows:
– 1 April 2018 – 10 francs to $1.
– 30 April 2018 – 9·5 francs to $1.
– 31 July 2018 – 9 francs to $1.
– 30 September 2018 – 8 francs to $1.
– Average rate for the period from 1 April 2018 to 30 September 2018 – 9·2 francs to $1.