MGT401- Manufacturing Private Limited (MPL) purchased a plant on 1st January 2003. The following details are

| February 25, 2017

Topic to be tested
· Property, Plant and Equipment (IAS-16)

Learning objectives:
· To learn about the correct costing of Plant asset as per IAS-16
· To learn about the depreciation schedule
· To learn about the calculation of profit or loss on sale of plant asset.

Assignment Question:

Manufacturing Private Limited (MPL) purchased a plant on 1st January 2003. The following details are applicable to this transaction: Particula$ Amounts
Purchase price 149,340
Delivery cost 4,221
Installation cost 6,579
General and administration cost 1,000
Cost of testing 5,000
Pre-production cost 2,000
Initial operating losses 10,000
Total 178,140

Additional information:
· The purchase price of $. 149,340 is payable on 31st December 2003. Normally vendo$ do not provide such plants on credit basis. The current market interest rate is 14% per annum.

· All administrative costs are of indirect nature.

· In order to check that the plant is working properly or not some sample products have been made
from this plant and the cost incurred on these samples are included in the testing cost. These
samples were sold at net proceeds of $.500. This cost is considered necessary by the management in order to check the plant’s initial capacity.

· The initial operating losses are charged to the initial production of small lots.

· The plant was ready on 3rd January 2003 and immediately put into use.

· It is decided to depreciate the plant on straight line method over 8 yea$; taking into account the
residual value of plant is $. 7,000.

· It is assumed that the liability to dismantle and remove the machine exists at the end of its useful
life at a cost of $. 3,500 (discounted present value if $. 1,700).

· At the end of 8th year plant was sold at $. 10,000.

· Ignore value added tax.


1. Determine the plant’s cost to be recognized in MPL’s books as per IAS 16. (Marks: 10)

2. Prepare a depreciation schedule of plant for 8 yea$ by following the format given below.
(Marks: 08)

3. Calculate the amount of profit or loss on disposal of the plant. (Marks: 02)

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Yea$ Cost

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