Madeni Limited installed a new milk processing machine that was imported from Holland and below are the costs recorded by the accountant up to the point when the machinery started running. Cost of the machinery - Ksh 7,800,000 Freight and insurance

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

2. Madeni Limited installed a new milk processing machine that was imported from Holland and

below are the costs recorded by the accountant up to the point when the machinery started

running.

Cost of the machinery - Ksh 7,800,000

Freight and insurance costs from Amsterdam to Nairobi – Ksh 550,000

Five years comprehensive maintenance contract cost at Ksh 450,000 per annum

Clearance costs paid to the clearing and forwarding agent - Ksh 210,000

Rebate from plant manufacturer - Ksh 620,000

Settlement discount for prompt payment at 15% of the cost net of the rebate

Initial testing costs - Ksh 345,000

Annual insurance for the machinery – Ksh 730,000

Import duties and taxes paid – Ksh 2,050,000

Monthly utility bills (water & electricity) attributable to running the new plant –

Ksh 185,000

Partitioning and fabrication costs to install the new plant – Ksh 588,000

Required:

(i) Find out the costs to be capitalized 

(ii) Madeni Limited capitalized the above machinery on 1st July 2018. The asset was

deemed to have an estimated residual value of Ksh 2,000,000 and a useful life of

10 years. The machinery was thereafter sold for Ksh 6,500,000 on 31 December

2020, the last day of the accounting year of the business in order to be replaced with

a higher capacity machine. To make the sale, the Madeni Limited had to incur

dismantling costs and costs of transporting the machine to the buyer's premises.

These amounted to KSh 700,000.

Required:

Compute the profit or loss on disposal of the equipment assuming Madeni Limited

uses the straight line method of depreciation

Expert Solution
steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Accounting for Impairment of Assets
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education