Hello dear people!
I am new to this forum, and I hope I have the right place for this to post.
On the comming tuesday I have an exam regarding the topic of IFRS. I am currently studying and going through all our excercises we discussed in class.
I come across this particular excercise (see attached file).
Under IAS 16, part of the initial cost of recognition for any item of property, plant and equipment, is the initial estimated costs of dismantling and removing an item and restoring the site it was used on.
And in this case, there is an obligation, to dismantle and remove the item after 20 years of usage. The estimated costs are 250.000€.
The thing is: There is a relevant discount rate of 6% given. Is this just an additional information to confuse us students?
Or do we have to discount this amount with the given information?
SO the discount formula being: 250.000/(1+0,06)^20, so that the result will be (rounded down) 77.951 ? Or do the full 250.000 have to be taken into account to determing the initial recognition value of the machine?
It might be bold to ask, but if anyone knows all the stuff, I would be very greatful for you, because never was this explained to us in the lecture.
Also, my solution up until now is as follows:
I assume the VAT is deductible, so one can use the net amounts:
The list price is 4.462.500€, with a trade discount of 10% granted on it. Which reduces the list price to 4.016.250€. When deducting the VAT, this results into a value of 3.375.000€.
A government grant is granted to the company, which can either be recorded as deferred income, or it can reduce the price of the asset (which is done here). So the value goes down again, to 3.075.000€.
Then there are further incidenta costs:
- freight costs of 11.900 (including 19% VAT). Vat is deducted and the net value is 10.000€.
- costs to install the machine: 5.000€
- insurance to cover up possible delivery damages: 500€
- costs for the procurement department: 1.000€
This leads me to a, temporary, total of 3.091.500€.
The last question is, how to handle the dismantling costs...
Any help would be greatly appreciated!!
I am new to this forum, and I hope I have the right place for this to post.
On the comming tuesday I have an exam regarding the topic of IFRS. I am currently studying and going through all our excercises we discussed in class.
I come across this particular excercise (see attached file).
Under IAS 16, part of the initial cost of recognition for any item of property, plant and equipment, is the initial estimated costs of dismantling and removing an item and restoring the site it was used on.
And in this case, there is an obligation, to dismantle and remove the item after 20 years of usage. The estimated costs are 250.000€.
The thing is: There is a relevant discount rate of 6% given. Is this just an additional information to confuse us students?
Or do we have to discount this amount with the given information?
SO the discount formula being: 250.000/(1+0,06)^20, so that the result will be (rounded down) 77.951 ? Or do the full 250.000 have to be taken into account to determing the initial recognition value of the machine?
It might be bold to ask, but if anyone knows all the stuff, I would be very greatful for you, because never was this explained to us in the lecture.
Also, my solution up until now is as follows:
I assume the VAT is deductible, so one can use the net amounts:
The list price is 4.462.500€, with a trade discount of 10% granted on it. Which reduces the list price to 4.016.250€. When deducting the VAT, this results into a value of 3.375.000€.
A government grant is granted to the company, which can either be recorded as deferred income, or it can reduce the price of the asset (which is done here). So the value goes down again, to 3.075.000€.
Then there are further incidenta costs:
- freight costs of 11.900 (including 19% VAT). Vat is deducted and the net value is 10.000€.
- costs to install the machine: 5.000€
- insurance to cover up possible delivery damages: 500€
- costs for the procurement department: 1.000€
This leads me to a, temporary, total of 3.091.500€.
The last question is, how to handle the dismantling costs...
Any help would be greatly appreciated!!
