Question
On 1 January 2021, Scavenging Limited opened a new plant in a manufacturing zone The following costs were incurred during January 2021 in respect of
On 1 January 2021, Scavenging Limited opened a new plant in a manufacturing zone The following costs were incurred during January 2021 in respect of the new plant (all excluding VAT): $
Invoiced price of the plant: 30 000 000
Direct costs of testing of plant to ensure that it is operating in the manner intended by management: 1 000 000
Proceeds from the sale of goods produced in testing (as scrap): (300 000)
Costs incurred in selling the scrap produced during testing: 50 000
Plant opening function for dignitaries, staff and clients: 500 000
From 1 February 2021, the plant was ready to operate in the manner intended by management. The plant incurred an operating loss of $ 2 500 000 for the month ended 28 February 2021, primarily due to initial low orders levels. Production levels reached break-even point in early March 2021, and thereafter the plant operated profitably.
Environmental legislation requires that the site upon which the plant is developed be rehabilitated by Scavenging Limited at the end of the plants useful economic life that has been reliably estimated at 10 years. On 1 January 2021, an environmental restoration provision of $ 500,000 was, in accordance with IAS 37, raised in this respect.
Required: Calculate the cost of the plant in accordance with IAS 16 Property, plant and equipment. You must justify each and every costs mentioned above and state whether you would include or not include to calculate the cost of the plant
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