Blog: Mgt401 Assignment No. 1 Fall 2011 Solution

Semester “Fall 2011”

“Financial Accounting II (MGT401)”

Assignment No. 01 Total Marks: 15

Question No. 1 (5 Marks)

On October 01, 2010 Model Company Limited, in the course of improvement and enhancement of its production facility, imported a plant from abroad having invoice value of Rs. 30 million for the production of its popular brand of electrical goods. A special trade discount of 25% was allowed by the vendor. Mr. Goodman, one of the directors, was assigned the duty of supervising the installation of the plant. 

Other information is given below:

Rs.

Expenses related to the import of the plant 1,620,000

Site preparation vusolutions 4,900,000

Operating losses before commercial production 400,000

Cost of test run & special staff training 730,000

Misc. Administrative Expenses 75,000

Interest paid to the vendor for deferred credit 200,000 

Compensation by the vendor for capacity default 900,000

Estimated dismantling and other costs 1,150,000

Cost of damaged instruments 150,000

Required: Determine the cost of the plant to be recognized initially in the books of account.

Question No. 2

Furniture Point is the renowned name in the furniture market. They are dealing in five major wooden components of vusolutions furniture i.e. sofas, bed sets, dressing tables, dining tables and wardrobes. At 31st December, 2010 the inventory in hand was as follows:

Required: Calculate the value of inventory as on December 31, 2010 under IAS 2 – Inventory. Also pass necessary adjusting entries in this regard, if required.

NOTE: Show complete working and formulas in each question

Schedule

Opening Date and Time: October 31, 2011 At 12:01 A.M. (Mid-Night)

Closing Date and Time: November 03, 2011 At 11:59 P.M. (Mid-Night)

Solution:

Mgt401 Assignment No. 1 solution


Q. 1:


Expenses related to the import of the plant 1,620,000
Site preparation 4,900,000
Operating losses before commercial production 400,000
Cost of test run & special staff training 730,000
Misc. Administrative Expenses 75,000
Interest paid to the vendor for deferred credit 200,000 Compensation by
the vendor for capacity default 900,000
Estimated dismantling and other costs 1,150,000
Cost of damaged instruments 150,000


Solution:


Add following items for the cost
Expenses related to the import of the plant 1,620,000
Site preparation 4,900,000
Cost of test run & special staff training 730,000
Interest paid to the vendor for deferred credit 200,000
Estimated dismantling and other costs 1,150,000
Cost of damaged instruments 150,000


That makes it = 4340000
Now less following items
Compensation by the vendor for capacity default 900,000


4340000-900000
That makes it 3440000


The final cost that will be takes is 3440000


Don’t add operating losses and miscellaneous expenses because they are not
directly related to the cost of asset,, and don’t less them.. they are irrelevant,,, just leave them,,,


For the reference…. See the IAS 16, Property Plant and equipment,,, page number 19. topic is “components of cost”

At 31st December, 2010 the inventory in hand was as follows: Items	Quantity (Units)	Cost per Unit Rs. (000)	NRV per Unit Rs. (000)
Sofa set	100	85	98
Dining Table	150	120	105
Bed	200	150	180
Dressing Table	400	60	55
Wardrobe	450	75	70

for dining table and wardrobe cost is more than NRV,, they will be recorded at the NRV..and following adjusting entries will be passed for them,, ( debit 


the p/l account with the difference in value, ,, and credit the stock in trade account…


for dining table:
P/l Account 15 Rs debit
Stock in trade 15 Rs Credit


For the wardrobe:
PL account         5 Rs          debit
Stock in trade 5 Rs          credit


For dressing table:
Pl account         5 Rs         debit
Stock in trade 5 Rs          credit


Final amount will be:


85+105+150+55+70 = 465


For reference,, see the page number 57-59 on handouts,,, Ias 02 inventories .


Remember: This is just idea solution ,,, dun copy it as it is,,, take the idea and make ur own solution please,,

::::::::::::::::::
Calculation for the Cost of Plant:
Rs.
Expenses related to the Import of the Plant = 1,620,000
Add: Site Preparation = 4,900,000
Add: Cost of Test Run & Special Staff Training = 730,000
Add: Interest Paid to the Vendor for Deferred Credit = 200,000
Add: Estimated Dismantling and other Costs = 1,150,000
Add: Cost of Damaged Instruments =150,000
Total = 8,750,000
Less: Compensation by the Vendor for Capacity Default = 900,000
Total Cost = 7,850,000


Particular Amount Amount
Purchase price 30000000
Less trade discount 7500000
Net purchase 22500000
Add expenses related to import of plant 1620000
Add site preparation 4900000
Add cost of test run & special staff training 730000
Add interest paid to the vendor for deferred credit 200000
Add estimating & dismantling cost 1150000
Add cost of damaged instruments 150000
31250000
Less compensation by the vendor for capacity default 900000
Cost of plant 30350000