Niasha Stores recently imported an item of plant from Grenadines Plants Ltd. The following information has been made available with regards to the purchase: Details $ Basic list price 3,000,000 Other costs: Transportation and handling 100,000 Pre-production testing 200,000 Holding structure for plant 350,000 Electrical inputs for plant 120,000 Own labour costs 250,000 Estimated maintenance costs for 5 years 300,000 The plant is expected to be useful for 8 years. At the end of this time, it will cost $180,000 to dismantle the plant and $140,000 to restore the site to its original state and use. Trade discount applicable to the purchase of the plant was 15% on the list price. Niasha Stores had made an error in purchasing electrical inputs amounting to $20,000. This cost was included in the above figure. In order to get the plant into the country Niasha Stores was charged 20% import duties on the basic list price. Niasha Stores paid for the plant within three weeks of order thereby obtaining a 2% early settlement discount. Required: (i) Determine the amount at which the original cost of the plant should be recorded in the books. (ii) Explain the treatment of maintenance charges and the early settlement discount under IAS16. (iii) Outline three conditions which IAS16 allows for subsequent costs relating to a tangible non-current asset to be capitalized.
(a)
Niasha Stores recently imported an item of plant from Grenadines Plants Ltd. The following information has been made available with regards to the purchase:
|
Details |
$ |
|
Basic list price |
3,000,000 |
|
Other costs: |
|
|
Transportation and handling |
100,000 |
|
Pre-production testing |
200,000 |
|
Holding structure for plant |
350,000 |
|
Electrical inputs for plant |
120,000 |
|
Own labour costs |
250,000 |
|
Estimated maintenance costs for 5 years |
300,000 |
The plant is expected to be useful for 8 years. At the end of this time, it will cost $180,000 to dismantle the plant and $140,000 to restore the site to its original state and use. Trade discount applicable to the purchase of the plant was 15% on the list price. Niasha Stores had made an error in purchasing electrical inputs amounting to $20,000. This cost was included in the above figure. In order to get the plant into the country Niasha Stores was charged 20% import duties on the basic list price. Niasha Stores paid for the plant within three weeks of order thereby obtaining a 2% early settlement discount.
Required:
(i) Determine the amount at which the original cost of the plant should be recorded in the books.
(ii) Explain the treatment of maintenance charges and the early settlement discount under IAS16.
(iii) Outline three conditions which IAS16 allows for subsequent costs relating to a tangible non-current asset to be capitalized.
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