MGT401 Financial Accounting II Assignment#01 full Solution October 2011

[Vuhelper]

On October 01, 2010 Model Company Limited, in the course of improvement and enhancement of its production facility, imported a plant from abroad having invoice value of Rs. 30 million for the production of its popular brand of electrical goods. A special trade discount of 25% was allowed by the vendor. Mr. Goodman, one of the directors, was assigned the duty of supervising the installation of the plant. Other information is given below:

Rs.

Expenses related to the import of the plant 1,620,000

Site preparation 4,900,000

Operating losses before commercial production 400,000

Cost of test run & special staff training 730,000

Misc. Administrative Expenses 75,000

Interest paid to the vendor for deferred credit 200,000 Compensation by the vendor for capacity default 900,000

Estimated dismantling and other costs 1,150,000

Cost of damaged instruments 150,000



Required: Determine the cost of the plant to be recognized initially in the books of account.



Question No. 2

Furniture Point is the renowned name in the furniture market. They are dealing in five major wooden components of furniture i.e. sofas, bed sets, dressing tables, dining tables and wardrobes. At 31st December, 2010 the inventory in hand was as follows:

Items
Quantity
(Units)

Cost per UnitRs. (000)

NRV per Unit Rs. (000)
Sofa Set
100
85
98
Dinning Table
150

120

105
Bed
200


150

180
Dressing Table

400
60

55
Wardrobe
450

75

70

[Vuhelper]

Question 1 Solution



Expenses related to the import of the plant 1,620,000

Site preparation 4,900,000

Operating losses before commercial production 400,000

Cost of test run & special staff training 730,000

Misc. Administrative Expenses 75,000

Interest paid to the vendor for deferred credit 200,000 Compensation by the vendor for capacity default 900,000

Estimated dismantling and other costs 1,150,000

Cost of damaged instruments 150,000





Here is the solution



Add following items for the cost



Expenses related to the import of the plant 1,620,000

Site preparation 4,900,000

Cost of test run & special staff training 730,000

Interest paid to the vendor for deferred credit 200,000

Estimated dismantling and other costs 1,150,000

Cost of damaged instruments 150,000





That makes it = 4340000



Now less following items



Compensation by the vendor for capacity default 900,000





4340000-900000



That makes it 3440000



The final cost that will be takes is 3440000





Don’t add operating losses and miscellaneous expenses because they are not directly related to the cost of asset,, and don’t less them.. they are irrelevant,,, just leave them,,,







For the reference…. See the IAS 16, Property Plant and equipment,,, page number 19. topic is “components of cost”



















. At 31st December, 2010 the inventory in hand was as follows: Items


Quantity

(Units)


Cost per UnitRs. (000)


NRV per Unit Rs. (000)
Sofa Set

100


85


98
Dinning Table

150


120


105
Bed

200


150


180
Dressing Table

400


60


55
Wardrobe

450


75


70





for dining table and wardrobe cost is more than NRV,, they will be recorded at the NRV..and following adjusting entries will be passed for them,, ( debit the p/l account with the difference in value, ,, and credit the stock in trade account…



for dining table



P/l Account 15 Rs debit

Stock in trade 15 Rs Credit





For the wardrobe



PL account 5 Rs debit

Stock in trade 5 Rs credit



For dressing table,,



Pl account 5 debit

Stock in trade 5 credit







Final amount will be



85+105+150+55+70 = 465