Calculate the initial cost of the plant. Your answer should explain the reasons why some of the costs are not included in the calculation.
Jojo Sdn Bhd ordered from Koko Sdn Bhd a piece of specialised heavy equipment for its operations.
Details of cost incurred are:
RM
Purchase price
500,000
Import duty
12,000
Engineer’s fees (for inspection and installation)
10,000
Shipping and transport costs
6,000
Site preparation costs:
Direct labour costs
5,000
Concrete reinforcement
4,000
Maintenance and service contract for 1 year
3,000
Jojo Sdn Bhd received a trade discount of 10% on list price and 5% cash discount on early settlement.
Jojo Sdn Bhd obtained a loan of RM500,000 to finance the purchase. Interest expense on the loan for the year was RM25,000.
The equipment has a useful life of 5 years. Jojo Sdn Bhd estimates that dismantling cost to be RM3,500 and legal obligation to restore the site is RM6,500. Both these values are stated in present values.
Required:
Calculate the initial cost of the plant. Your answer should explain the reasons why some of the costs are not included in the calculation.
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