- Epsilon is an entity which prepares financial statements, in accordance with International Financial Reporting Standards (IFRS), to 30 September each year.
On 1 April 2018, Epsilon accepted delivery of a large and complex machine from a supplier. The agreed purchase price for the machine was £2 million. Epsilon received 10% trade discount.
On 1 April 2018, Epsilon incurred direct costs of £50,000 in handling the machine and £25,000 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. Epsilon uses the straight-line method for calculating the depreciation. On 31 March 2023, Epsilon will be legally required to decommission the machine using the original supplier. The directors of Epsilon estimate that the cost of safely decommissioning the machine on 31 March 2023 will be £3 million. At an appropriate discount rate, the present value of the cost of decommissioning is expected to be £2.043 million.
Show with appropriate calculations how the above events would be reported in the financial statements of Epsilon for the year ended 30 September 2018. (10 marks)