1. Kangema Dairies has decided to upgrade its milk Pasteurizing machinery from a firehood heated equipment to electric machinery. The following costs were incurred in acquiring the new machinery on 5 January 2020.

Sh.’000’

Cost price 51,000

Discount to dairy manufacturers 10% of equipment cost

Sea Freight charges 11,900

Customs duty 20% of the CIF price

Value added tax 16% of the CIF price plus duty

Installation costs 34,00

Pre-production testing 2100

Insurance (annual) 1600

Salary paid to machine attendant (annual) 600

Additional information:

1. The old equipment was disposed at the beginning of the year ended for Sh. 1200,000 had cost the company Sh. 1,920,000 on 4 January 2011. A lorry acquired on 2 January 2016 at Sh. 6,000,000 was grounded during the year.
2. The company has land that cost Sh. 14,000,000 in 2011. Professional valuer’s have advised that the land be revalued at Sh. 26,000,000
3. The cooperative society has been using furniture donated in 2013 by a local community based organization. The estimated value at the time of donation was Sh. 2,400,000
4. The value added tax on assets is claimable against the output tax
5. Depreciation is provided at 15 % on furniture, 12.5% on motor vehicles and 10% on equipment on straight line basis. Full charge is made in the year of acquisition and none in the year of disposal.

Required:

1. Ascertain the cost of the new machinery.
2. Disposal accounts.
3. Provision for depreciation accounts.
4. A property, plant and equipment movement schedule for the year ended31 December 2020.

Answer rating: 100% (QA)

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