Entity 2 purchased a specialist machine from a US supplier on 1 January 2021. The trade pricewas $500,000. The machine was delivered on 1 February with a delivery charge of $2,500applied by the US supplier. An import duty of £75,000 was levied by the HMRC. Entity 2incurred a further £15,000 to install the machine in its Manchester factory. By 1 March 2021, themachine was fully operational. The machine has a useful economic life of 10 years with noresidual value. A dismantling expense of £45,000 is expected to incur at the end of 2030.On 1 July 2021, the factory was temporary shut down due to the Covid restrictions and ashortage of staff. It was re-opened on 1 August 2021.Entity 2 paid the US supplier the full invoice amount of $502,500 on 1 March 2021. Thefollowing exchange rates are available:Dates1 January 20211 February 20211 March 202131 December 2021$ to £11.2451.3271.2981.276Entity 2 has a cost of capital of 10% per annum. Depreciation is calculated on a monthly basisusing the straight-line method.(c) Show clearly how the trade payables should be recognised initially and how the subsequentpayment should be recorded. Explain how the foreign exchange difference should beaccounted for in this case.

Entity 2 purchased a specialist machine from a US Supplier on 1st Jan 2021. The price of the machine…

(c) Show clearly how the trade payables should be recognised initially and how the subsequent payment should be recorded. Explain how the foreign exchange difference should be accounted for in this case.

(c) Show clearly how the trade payables should be recognised initially and how the subsequent payment should be recorded. Explain how the foreign exchange difference should be accounted for in this case.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 11P

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