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On 30 June 2016, ABC Ltd. Buys and puts into service an item of specialised equipment to increase the production

capacity of its Property, Plant and Equipment. Details of the new equipment item:

• Cost $500,000

• Estimated residual value $10,000

• Estimated life = 10 years (to be used equally over the period)

• The equipment will be purchased by borrowing the full amount and will be repaid in a lump sum in 2020. Interest of 10% per annum will be paid at the end of each twelve months after purchase of the equipment.

• ABC Ltd. failed to record the new equipment in the 31 December 2016 annual financial statements. Management discovered the omission in April 2017 is material.

(a) Assuming that the management of ABC Ltd. determine that the missing item is material to the December 2016 financial statements show the general journal entry to record the required information.

(b) Show how the change would be presented in ABC Ltd.'s 31 December 2017 financial statements.

(c) If you were interested in buying shares in ABC Ltd. in 2018, would the missing information be of importance to you? Explain why.

(d) Would the missing information effect any ratio analysis that you might use in your analysis of the potential share purchase? Explain briefly. 

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