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in Case 2 (4 Marks) Godfrey Company constructed a new chemical plant in year which begun production on January 1 year 2. The cost
in Case 2 (4 Marks) Godfrey Company constructed a new chemical plant in year which begun production on January 1 year 2. The cost of the Plant was $5,000,000 that included; $1,500,000 for the building, and $3,500,000 for machinery and equipment. The useful life of the plant (both building and machinery and equipment) is estimated 20 years Local laws require machinery and equipment to be inspected every 5 years. The company estimates the cost of inspection and overhaul of the machinery and equipment ever 5 years to be $200,000. Environmental laws require the company to dismantle the machinery and equipment and remove the plant assets at the end of their useful lives. The company estimates the cost of dismantling and removal of the equipment to be $100,000. (Present value interest factor at 10% = 0.14864) The net cost of dismantling and removal of the building after deducting salvage value will be $1,500,000. (Present value interest factor at 10% = 0.14864) The company uses straight line depreciation The company uses the cost model to account for PPE Required: 1. Determine the cost of the plant assets on January 1, Year 2. 2. Determine the depreciation expense that should be recognized related to the plant assets in year 2.
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