The following costs were incurred by AstraZeneca Limited on the construction of a new retail outlet building which began on 1 April 2017: Freehold land $ 4,500,000.00 General Overheads $ 740,000.00 Professional fees $ 620,000.00 Excavation and demolition $ 1,650,000.00 Materials $ 7,800,000.00 Direct labour $ 11,200,000.00 Legal Fees $ 2,400,000.00 The store was completed on 1 January 2018 and brought into use following its grand opening on the 1 April 2018. AstraZeneca Limited issued a $25m unsecured loan on 1 April 2017 to aid construction of the new store. The asset is expected to last for approximately 40 years. Required: A. Calculate the amount to be included as property, plant and equipment in respect of the new store assuming there is an agreement to repay the loan at an interest rate of 8% per annum and is repayable on 1 April 2019. Show all workings
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
The following costs were incurred by AstraZeneca Limited on the construction of a new retail
outlet building which began on 1 April 2017:
Freehold land $ 4,500,000.00
General
Professional fees $ 620,000.00
Excavation and demolition $ 1,650,000.00
Materials $ 7,800,000.00
Direct labour $ 11,200,000.00
Legal Fees $ 2,400,000.00
The store was completed on 1 January 2018 and brought into use following its grand opening on
the 1 April 2018. AstraZeneca Limited issued a $25m unsecured loan on 1 April 2017 to aid
construction of the new store. The asset is expected to last for approximately 40 years.
Required:
A. Calculate the amount to be included as property, plant and equipment in respect of the
new store assuming there is an agreement to repay the loan at an interest rate of 8% per
annum and is repayable on 1 April 2019. Show all workings
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