On 01 January 2016, Polluter Limited opened a new plant in Pietermaritzburg. The following costs were incurred
Question:
On 01 January 2016, Polluter Limited opened a new plant in Pietermaritzburg.
The following costs were incurred during January 2016 in respect of the new plant (all excluding VAT):
R | |
Invoiced price of the plant | 6 000 000 |
Direct costs of testing the plant to ensure full operation as intended | 500 000 |
Proceeds from sale of samples | 600 000 |
Costs incurred in selling samples | 100 000 |
Plant opening function | 1 000 0000 |
The plant was in use from 01 January 2016. The plant incurred an operating loss of R200 000 for the month ended 31 March 2016 due to low order levels. The plant is depreciated using the straight-line method at 10%.
The company uses the revaluation model and revalues its plant on an annual basis and records the fair value adjustments. The following revaluations were performed:
Fair value 01/01/2017 R5 490 000
Fair value 01/01/2018 R5 000 000
Required:
2.1 Calculate the cost of the plant as at 01 January 2016. (5)
2.2 Prepare the journal entries in the general journal for the end of years: (Show all workings)
College Accounting Chapters 1-30
ISBN: 978-1259631115
15th edition
Authors: John Price, M. David Haddock, Michael Farina