The following scenario relates to questions 20-24. On 1 October 2015 Euny Co acquired a...
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Accounting
The following scenario relates to questions 20-24.
On 1 October 2015 Euny Co acquired a machine. The following information is available:
| Manufacturer's base price | 1,050,000 |
| Trade discount (applying to the base price only) | 20% |
| Freight charges | 30,000 |
| Installation costs | 28,000 |
| Staff training to use the machine | 40,000 |
| Pre-production testing | 22,000 |
| Prepayment for a three year maintenance contract | 60,000 |
Question:
On 1 October 2017 Euny Co decided to upgrade the machine by adding new components at a cost of 200,000. This upgrade led to a reduction in the production time per unit of the goods being manufactured using the machine.
How should 200,000 worth of new components be accounted for?
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