Regal Global Industries, Inc. is a multinational conglomerate that is both a manufacturer and distributor of various products and services in several industries. Regal provides products and services to both the retail consumer markets, as well as to the business to business sector, under several different brand names through a multitude of subsidiaries. Regal also operates a financial services division to facilitate financing and leasing of some of its commercial equipment products. Regal is headquartered in Los Angeles, CA, and is a publicly traded company, listed on the NYSE. Regal has manufacturing and distribution facilities throughout the US, Asia, and Latin America. Regal sells its various product lines domestically and internationally, in all major industrialized markets.

You are a newly hired Senior Staff Accounting assigned to the international accounting team in the Los Angeles corporate headquarters. You report to Barry Burton, European Segment Accounting Manager, who is a direct report to Steve Fox, Controller for international operations. Steve is a direct report in the Clark Green, corporate chief financial officer.

The European Business Segment is a mirror of the overall corporate footprint and provides products and services in all of Regals lines of business. The European Business Segment maintains accounting records locally following IFRS, as well as the other local accounting requirements. The European Business Segment consolidates into the Corporate Parent, which is a US corporation, following US GAAP

Q:

1. Several weeks have gone by and you have worked on a variety of assignments. Barry calls you on the phone and asks you to come into his office. He tells you that Regal subsidiary FM Montgomery is installing a new plant at its production facility. He would like you to prepare an analysis on the costs that can be capitalized in accordance with IAS 16. FM Montgomery has incurred the following costs:

1. Cost of the plant (cost per suppliers invoice plus taxes) $2,500,000
2. Initial delivery and handling costs 200,000
3. Cost of site preparation 600,000
4. Consultants used for advice on the acquisition of the plant 700,000
5. Interest charges paid to supplier of plant for deferred credit 200,000
6. Estimated dismantling costs to be incurred after 7 years 300,000
7. Operating losses before commercial production 400,000