Hi, I have a couple of questions relating to the solution given in the solutions manual 1. Cost of sales is not affected by the purchase of raw material for 1m, only depreciation. Should it not be increased by the 1m? 2. Finance charge is only 80 000, which is 8% of 1m. Should the interest not be based on the entire loan of 4m? Hope someone will be able to assist
Hi 1. There is a 1m purchase on raw materials, but as the question tells us there will be no production from the machine in 2010, this 1m is added to the inventories (rather than being a cost of sale). 2. We only want to include 3 months of interest on the loan in the accounts at Dec 2010, so 8% x 4m x 3/12. Hope this helps Lynn
