Question 2 Marvel Limited requires a generator for its factory in Karachi. The following information is relevant for the acquisition. 1. Marvel Limited issued a special Bond (2018) of Rs. 10,000,000 carrying a coupon rate of 12% per annum on 1 January 2014. The bond will mature after 5 years. The loan will be used to buy a new generator and to pay the related expenses, with the remaining amount to be invested in company's business. 2. Marvel Limited placed order to buy a new generator with General Electric (GE) in USA on 1st July 2014. The generator is estimated to have a useful life of 6 years and NIL residual value. Marvel had to pay Rs. 6,000,000 (in equivalent US$) in advance to GE with the order. 3. On 1st August 2014, the Company paid Rs. 1,500,000. It included adjustable sales tax of Rs. 300,000 and Rs. 1,000,000 spent to build a concrete foundation to house the generator. Remaining amount related to freight inwards. The foundation has expected life of 20 years. 4. On 1 November 2014, the local government approached the company and offered to provide a grant of Rs. 1,500,000 if the company installs a sound-reducing canopy on the generator and use it throughout the period of use of the generator. The management decided to treat the grant as deferred grant revenue and amortize it over the useful life. 5. The directors of the company agreed and ordered a canopy with a useful life of 5 years that will cost Rs. 1,000,000 and NIL residual value. It was further agreed that in order to receive the grant, the generator will not be used until the canopy is installed. 6. Installation was complete on 31 December 2014 with further cost of Rs. 50,000 incurred and paid on labor and miscellaneous expenses related to installation of the generator. The canopy was also paid for and installed on 31 December 2014. 7. The grant of Rs. 1,500,000 was received on 31st December 2014. The company started using the generator from 1st January 2015. 8. On 15th December 2016, the company revised the estimate of total useful life of the generator to be 11 years. As one year has passed, remaining life will be 10 years. The life of canopy and foundation will remain the same as the earlier estimates. 9. On 5th January 2018, a small fire broke up. The damage to generator was minimal and repairs costing Rs. 50,000 were sufficient. The canopy was completely damaged and had to be replaced by a new canopy costing 1,200,000. The new canopy had a useful life of 6 years. 10. To assess the damage a survey was conducted that revealed that market value of a similar generator is Rs. 4,960,000 with no change in useful life. Canopy and Foundation was found to have no change in value or life. The generator was revalued on 15th January 2018. 11. On 1 January 2020, the generator was exchanged with a newer model available in the local market. Marvel Limited had to pay Rs. 2,000,000 and give the old generator in exchange for the new model. The new model has a list price of Rs. 6,000,000 but usually sells at a discount of 10%. The new generator has a build-in canopy and old canopy will be scrapped. 12. Cost of dismantling the old generator will be Rs. 200,000. The cost of installing the new model will be Rs. 250,000. Both costs would be paid by Marvel Limited from own sources. Required: To record journal entries till the exchange of assets on 1 January 2020.