- On 1st April 20x1 Sun Itd Purchased Some Land For 10 Million Including Legal Costs Of 1 Million In Order To Cons 1 (143.06 KiB) Viewed 32 times
On 1st April, 20X1, Sun Itd purchased some land for $ 10 million (including legal costs of $ 1 million) in order to construct a new factory. Construction work commenced on 1st May, 20X1. Sun Itd incurred the following costs in relation with its construction: - Preparation and levelling of the land - $ 3,00,000. - Purchase of materials for the construction - $ 6.08 million in total. - Employment costs of the construction workers - $ 2,00,000 per month. - Overhead costs incurred directly on the construction of the factory - $ 1,00,000 per month. - Ongoing overhead costs allocated to the construction project using the company's normal overhead allocation model - $ 50,000 per month. - Income received during the temporary use of the factory premise as a car park during the construction period - $50,000. - Cost of relocating employees to work at the new factory - $3,00,000. - Costs of the opening ceremony on 31st January, 20X1 - $ 150,000 The factory was completed on 30th November, 20X1 (which is considered as substantial period of time as per Ind AS 23) and production began on 1st February, 20X2. The overall useful life of the factory building was estimated at 40 years from the date of completion. However, it is estimated that the roof will need to be replaced 20 years after the date of completion and that the cost of replacing the roof at current prices would be 30% of the total cost of the building. At the end of the 40-year period, Sun Ltd has a legally enforceable obligation to demolish the factory and restore the site to its original condition. The directors estimate that the cost of demolition in 40 years' time (based on prices prevailing at that time) will be $ 20 million. An annual risk adjusted discount rate which is appropriate to this project is 8%. The present value of $ 1 payable in 40 years' time at an annual discount rate of 8% is $ 0.046. The construction of the factory was partly financed by a loan of $ 17.5 million taken out on 1st April, 20X1. The loan was at an annual rate of interest of 6%. Sun Ltd received investment income of $ 100,000 on the temporary investment of the proceeds. Required: Compute the carrying amount of the factory in the Balance Sheet of Sun Ltd at 31st March, 20x2. You should explain your treatment of all the amounts referred to in this part in your answer.