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Q2. On 1 January 2019 Ravioli plc began construction of a new factory. The work was completed on 31st December 2020. The costs related to
Q2. On 1 January 2019 Ravioli plc began construction of a new factory. The work was completed on 31st December 2020. The costs related to the construction are shown below: Acquisition of land Planning application and legal fees Architect and engineering fees Site preparation of the land Construction materials Construction labour m 6.0 0.5 0.9 1.1 3.4 3.3 Included in the 3m of construction materials is 200,000 of timber that was not stored properly. The timber rotted before it could be used and had to be thrown away. . Ravioli has various general loans outstanding during the period. The details are: 8m loan at an interest rate of 4% 6m loan at an interest rate of 5% 10m loan at an interest rate of 5.8% . (0) Calculate the cost of the Property, plant and equipment to present in the Statement of financial position as at 31st December 2020 (8 marks) In 2021, Ravioli incurred some further expenditure on the warehouse.: Property insurance premiums Health and safety training for the new employees at the new site Repairs to the roof caused by a storm in April 2021 Installation of solar panels on the roof . 20,000 10,000 150,000 250,000 . . (ii) Calculate how much of this total qualifies as capital expenditure. (1 mark) The storm also caused damaged to some of the machinery in the factory, lowering its operating capacity. Ravioli considered the need to perform an impairment assessment and determined the following as at 31 December 2021: Carrying amount of machine, 500,000 An equivalent replacement machines would cost 620,000 If sold in its current condition, an agent believes the existing machine would sell for 450,000. The agent's sales commission would be 10,000. Page 2 of 6 . In its current condition, the machine could operate for 2 more years, generating cashflows of 250,000 per year. Ravioli's cost of borrowing is 10%. (iii) Calculate the amount of the impairment write-down necessary (if any) as at 31 December 2021. You should show all your workings. (6 marks) Total 15 marks
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