Blog: MGT401 Assignment No. 1 Solution

                SEMESTER SPRING 2013

Financial accounting-ii (mgt401)              ASSIGNMENT NO. 01

Due Date: 02^ND May, 2013
Marks: 20

Assignment: 1
Learning Objective
The students are expected to learn the application of the provisions of IAS 16 (Property, Plant & Equipment) and IAS 23 (Borrowing Cost)

Learning Outcomes
After going through this activity, the students should be able to apply IAS 16 & IAS 23 in their true meanings.

Case
Sunshine Assembling Limited is engaged in assembling of sewing machines, water filters and washing machines. The company has its own distribution network across the country. Recently, the company has announced to launch a new brand of computerized and programmable sewing machine in the market. The company will import its parts from Japan and assemble it on its newly designed hi-tech plant. The machine bearing the brand name of “Mach09” will be sold through the company’s existing distribution channels. For this purpose, the company has decided to construct its own assembling plant which will not only increase efficiency of the machine but will also reduce its assembling cost to the desirable level. It has been estimated that the new project would cost exactly at Rs. 20 million. To finance this project, the company has obtained a bank loan equivalent to 70% of the project cost at 20% p. a. for the period of 2 years. The life of the plant has been estimated at 10 years with the residual value estimated at 10% of the invoice value.
The loan was sanctioned on April 1, 2004 and the company immediately placed the acquired funds in saving account with a local bank for three months at an annual return of 14%. Due to some technical issues with the plant, the installation started on August 1, 2004. But, soon after the installation started, the company has been forced to stop it for a period of 3 months owing to the non-compliance of certain environmental safety laws. On 1^st January 2005, the company started installation again and continued it till its completion on August 31 in the same year. The entire loan was paid off on 31^st October 2005.
On December 31, 2005, fair market value of the plant was estimated at Rs. 25 million. The company has the policy to charge full year depreciation in the year of acquisition or purchase and no depreciation in the year of disposal.
Required:
(1)  Journal entries to record:
a)     Borrowing cost on the plant to capitalize;                                     (5 Marks)
b)     Initial plant cost to recognize;                                                      (3 Marks)
c)     Depreciation expense for the first year; &                                   (4 Marks)

(2)  Prepare depreciation schedule for the initial 5 years.                         (5 Marks)

(3)  Plant value to be reported at the balance sheet as on 31/12/2005       (3 Marks)


Important:
24 hours extra / grace period after the due date is usually available to overcome uploading difficulties. This extra time should only be used to meet the emergencies and above mentioned due dates should always be treated as final to avoid any inconvenience.
Important Instructions/ solution guidelines/ special instructions

Show complete working in support of your solution as it carries marks.

Other Important Instructions:
Deadline:

• Make sure to upload the solution file before the due date on VULMS.
• Any submission made via email after the due date will not be accepted.

Formatting guidelines:

• Use the font style “Times New Roman” or “Arial” and font size “12”.
• It is advised to compose your document in MS-Word format.
• You may also compose your assignment in Open Office format.
• Use black and blue font colors only.

Referencing Guidelines:

• Use APA style for referencing and citation.  For guidance search “APA reference style” in Google and read various websites containing information for better understanding or visit http://linguistics.byu.edu/faculty/henrichsenl/apa/APA01.html

Rules for Marking
Please note that your assignment will not be graded or graded as Zero (0), if:

• It is submitted after the due date.
• The file you uploaded does not open or is corrupt.
• It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF etc.
• It is cheated or copied from other students, internet, books, journals etc.

Note related to load shedding: Please be proactive

Dear students!
As you know that Pre Mid-Term semester activities have started and load shedding problem is also prevailing in our country. Keeping in view the fact, you all are advised to post your activities as early as possible without waiting for the due date. For your convenience; activity schedule has already been uploaded on VULMS for the current semester, therefore no excuse will be entertained after due date of assignments, quizzes or GDBs.