(i)Harris Ltd. exchanged a parcel of land with a carrying value of $15 million and fair value of $20 million, for some highly specialized machinery from Biden Corp. In addition, Harris Ltd. also paid $5 million along with the land in a transaction holding commercial substance to obtain the machinery. Required: What will be the cost of the specialized machinery in the financial statements of Harris Ltd.?

Principles of Accounting Volume 1
19th Edition
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax
Chapter11: Long-term Assets
Section: Chapter Questions
Problem 10PA: Buchanan Imports purchased McLaren Corporation for $5,000,000 cash when McLaren had net assets worth...
icon
Related questions
Question

(i)Harris Ltd. exchanged a parcel of land with a carrying value of $15 million and fair value of $20 million, for some highly specialized machinery from Biden Corp. In addition, Harris Ltd. also paid $5 million along with the land in a transaction holding commercial substance to obtain the machinery.

Required:
What will be the cost of the specialized machinery in the financial statements of Harris Ltd.?

(ii)
Harris Ltd also recently imported an artificial intelligent machinery and incurred the following costs:

                                                                                                         $
List price (trade discount 12.5% on list price)                            480,000
Haulage costs                                                                                5,500
Pre-production testing of machinery                                          25,000
Repair & maintenance contract for three years                          48,000
Running of electrical cable for machinery                                  28,000
Special foundation for mounting machinery                               9,000
Labor costs (direct)                                                                     15,000

Harris Ltd paid for the machinery within four weeks of the order, therefore, obtained an early settlement discount of 3%.

Harris Ltd had wrongly specified the power loading of the original electrical cable to be installed by the contractor. The cost of rectifying this error of $12,000 is included in the above figure of $28,000.

The machinery is expected to have a useful life of 20 years. At the end of this period there will be compulsory costs of $30,000 to dismantle the machinery and $6,000 to restore the site to the original condition.


Required:
Determine the capitalized value of the artificial intelligent machinery in the financial statements of Harris Ltd. Explain the treatment in the financials to be given to any cost or item not utilized in computing the capitalized value of the machinery.

Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Goodwill Valuation
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Principles of Accounting Volume 1
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
Auditing: A Risk Based-Approach (MindTap Course L…
Auditing: A Risk Based-Approach (MindTap Course L…
Accounting
ISBN:
9781337619455
Author:
Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:
Cengage Learning