Answered: The components of the cost of a major…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

100%

The components of the cost of a major item of equipment are given below.
GHS
Purchase price 780,000
Import duties 117,000
VAT (refundable) 78,000
Site preparation 30,000
Installation costs 28,000
Pre-production costs 18,000
Initial operating losses before the asset reaches planned
performance 50,000
Estimated cost of dismantling and removal of the asset,
recognized as a provision under IAS 37 Provisions,
Contingent Liabilities and Contingent Assets 100,000
1,201,000

In accordance with IAS 16 Property, Plant and Equipment, what amount should be recognized as the cost of the asset?

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Expert Solution

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Accounting for Property, Plant and Equipment

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