5 - Question 1 (IAS 16 ) Dubai IMAAR constructed a new, Factory construction in Year 1, which began production on January 1, Year 2 The cost to construct the plant was $1,500,000 for the building and $3,500,000 for machinery and equipment. The useful life of the plant (both building and machinery) is estimated to be 20 years. The equipment to be inspected by engineers after every 5 years of operation. The costs of the inspection and any required overhaul to take place in 5 years to be $200,000 Environmental laws also require to remove the plant assets at the end of their useful life. The company estimates that the net cost, after deducting any salvage value, for removal of the equipment will be $100,000, and the net cost removal of the building, after deducting salvage value, will be $1,500,000. The company has determined that the straight-line method of depreciation will be applied The company uses the cost model to account for its PPE. The company uses a discount rate of 10 percent in determining present values. Use the present value factor 0.14864 Required: 1- Determine the total cost allocated to the plant assets at January 1, Year 2. and consider the present value factor of the removal cost of the building and the Machinery & Equipment Record the Journal entry at January 1, Year 2 3- Determine the amount of depreciation expense that should be recognized related to the plant assets in Year 2. 2 5 - Question 1 (IAS 16 ) Dubai IMAAR constructed a new, Factory construction in Year 1, which began production on January 1, Year 2 The cost to construct the plant was $1,500,000 for the building and $3,500,000 for machinery and equipment. The useful life of the plant (both building and machinery) is estimated to be 20 years. The equipment to be inspected by engineers after every 5 years of operation. The costs of the inspection and any required overhaul to take place in 5 years to be $200,000 Environmental laws also require to remove the plant assets at the end of their useful life. The company estimates that the net cost, after deducting any salvage value, for removal of the equipment will be $100,000, and the net cost removal of the building, after deducting salvage value, will be $1,500,000. The company has determined that the straight-line method of depreciation will be applied The company uses the cost model to account for its PPE. The company uses a discount rate of 10 percent in determining present values. Use the present value factor 0.14864 Required: 1- Determine the total cost allocated to the plant assets at January 1, Year 2. and consider the present value factor of the removal cost of the building and the Machinery & Equipment Record the Journal entry at January 1, Year 2 3- Determine the amount of depreciation expense that should be recognized related to the plant assets in Year 2. 2