- 8 Marks
FA – May 2022 – L1 – SB – Q2b – Accounting for Property, Plant, and Equipment (IAS 16)
Compute the initial cost of a machine using cost elements like purchase price, clearing, installation, and adjustments.
Question
The following cost items are extracted from the books of Ore Limited regarding a machine acquired on June 1, 2020:
| Cost Items | ₦ |
|---|---|
| Clearing cost | 6,000 |
| Installation and testing charge | 24,000 |
| Purchase price | 600,000 |
| Purchase of spare parts (inclusive of VAT at 7.5%) | 6,400 |
Additional information:
- Rebate is provided at 5% of maintenance cost of ₦44,600.
Required:
Compute the initial cost of the machine.
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