Serna pic, a company in the heavy engineering industry, carried out an expansion programme in the 19X6 financial year, in order to meet a permanent increase in contracts.

The company selected a suitable site and commissioned a survey and valuation report, for which the fee was £1,500. On the basis of the report the site was acquired for £90,000.

Solicitor’s fees for drawing up the contract and conveyancing were £3,000.

Fees of £8,700 were paid to the architects for preparing the building plans and overseeing the building work. This was carried out partly by the company’s own workforce (at a wages cost of £11,600), using company building materials (cost £76,800) and partly by sub-contractors who charged £69,400, of which £4,700 related to the demolition of an existing building on the same site.

The completed building housed two hydraulic presses.

The cost of press A was £97,000 (ex works), payable in a single lump sum two months after installation. Serna was given a trade discount of 10% and a cash discount for prompt payment of 2%. Hire of a transporter to collect the press and to convey it to the new building was £2,900. Installation costs were £2,310, including hire of lifting gear, £1,400.

Press B would have cost £105,800 (delivered) if it had been paid in one lump sum.

However, Serna opted to pay three equal annual instalments of £40,000, starting on the date of acquisition. Installation costs were £2,550, including hire of lifting gear, £1,750.

The whole of the above expenditure was financed by the issue of £500,000 7% Debentures

(on which the annual interest payable was £35,000).

Before the above acquisitions were taken into account, the balances (at cost) on the fixed asset accounts for premises and plant were £521,100 and £407,500 respectively.