ACY Limited (“ACY”) purchased a specialized machine for its business use for a total price of...

ACY Limited (“ACY”) purchased a specialized machine for its business use for a total price of $3,000,000, paid in cash, on 1 January 2018. The total price included installation fee of $50,000, which enabled the machine to be immediately available for ACY’s use on 1 January 2018. This is estimated that the machine has a useful life of 10 years with a residual value up to $200,000. Double-declining-balance depreciation method is adopted. On 1 January 2018, to help finance the acquisition of this machine, ACY issued a 5-year zero-interest-bearing note, with a face value of $1,000,000, due on 31 December 2022. The market rate is 8% for notes with similar risks.

Question

For the year ended 31 October 2018, how much interest expense shall be reported in the Statement of Profit or Loss of ACY?

Select one:

A. $66,667

B. $54,447

C. $Nil. All interest shall be capitalized as cost of the machine acquired.

D. $45,372

Expert Solution

ekkarill92 answered 1 year ago

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