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EXERCISE 5.0. Property, plant & equipment. Initial value
Purchase (with related expenses), no provisions for dismantlement, removal or restoration of fixed
assets, straight-line depreciation.
On 2.1.2014, the company Maderas nobles, S.L. received a new machine from Malaysia supplier.
The invoice was 5.000 euros paid by bank transfer in one week time.
Transport and transport insurance from the country of origin are paid by the buyer: 500 euros. Import tariffs
amount to 300 euros and other port charges 100 euros.
Once the machine has arrived to the company, it was necessary some specialist work for installations: 400 euros.
It was also hired the services of a technician to tests the new machine: 200 euros.
All transactions related to the purchase is paid in cash.
On 28-02-2014 the machine starts its operations.
It is estimated that there will be no dismantelling costs at the end of its useful life.
For the economic depreciation of the machine is calculated a lifespan of 10 years and a residual value of 500euros
and the straight-line method is applied.
To do:
a) Determine the purchase price of the new machine.
b) Accounting entries in 2014 related to this transaction.
EXERCISE 5.1. PANESA. Purchase (with related expenses), Provisions for dismantlement, removal or restoration of fixed assets, straight-line depreciation and selling of technical asset (property, plant and equipment).
To finance the purchase of a new machine, the company PANESA on January 1, 2017 requested and obtained a specific loan of 11.000€, with a maturity of one year and payment of accrued interest (1.100€) at 1 January
On the same date, the company bought the new machine. The price was 10.000 € and the assembly costs were 1.000€. The estimated cost for dismantling and transporting the technical asset at the end of his lifespan are 1.000€ (4% discount rate).
After the corresponding testing period, the machine was able for operations on 1 March 2017.
The depreciation policy of the company for this type of technical assets is 10 years lineally.
On 30 June 2018 the company decided to sell the machine to a competing company that pay 12.000€ for it.
To do: The entries of accounting transactions associated with the first year of the machine. The entries related to the sale of the machine in 2018.
EXERCISE 5.2. Purchase (with related expenses), straight-line depreciation and selling of technical asset (intangible asset: property rights).
A film company acquired 1 January 2017 the copyright of a film, paying to the author the sum of € 1.500. In addition, the company also paid (i) € 30.000 to a mediator who was involved in negotiating the purchase and (ii) € 70.000 for the costs of registration in the intellectual property register. The company believes that this film will be in the market for a period of 10 years.
At the end of the third year and due to the success of the film, the company received good offers from various foreign production companies and decides to sell them it for a price of € 1.700.
To do: The record of transactions described above.
EXERCISE 5.3. MEDITERRANEAN CLAY Purchase (with related expenses), Technical non-current asset that needs more than one year to be build or produced, financial cost, Provisions for dismantlement, removal or restoration of fixed assets, straight-line depreciation.
Mediterranean Clays, sited in Castellon province, is the big Mediterranean firm dedicated to produce clays for industrial processes for the manufacture of ceramics and tiles. The corporate manager for Social Responsibility approved an important investment in order to reduce its environmental impact and contribute to the sustainability of the planet. The new environmental non-current asset was a cogeneration plant. The main component of such cogeneration plant was a turbogenerator that generates heat and electricity needed for the industrial process of trying ceramics and tiles.
The cost related to this environmental investment were:
Euros
Invoice by the Swiss supplier of the turbogenerator 5.000.
Transport from Switzerland to the site company in Castellon 100. Engineering technical study to adapt the turbogenerator to the production process of the company 65.
The turbogenerator setting–up costs 120. Non recoverable taxes (import taxes) 200.
A complementary non-current asset: an air compressor to improve the technical performance of the turbogenerator
Total 5.660.
The estimated cost for dismantling or removing the item, as well as other obligations associated with the asset, such as restoration of the site on which it is located.
Discount rate 5% Financial cost accrued, which have been charged by suppliers or relate to loans or other types of specific and general external financing directly attributable to the acquisition, manufacture or construction of property, plant and equipment that need more than one year to be brought into working condition. Note: accrued until the non-current asset is finished and starts to work.
YES
On 1st January 2017 the firm formalised a long term loan of 500.000euros with one of its banks at 8% of annual interest rate. The accrued interests were paid annually at the beginning of the following year. On the same date, the company paid the 10% to the Swiss supplier as an advance for of the turbogenerator that needs more than one year to be produced.
At the end of the year 2017, the company receives invoices from all the suppliers related to this investment. The invoice from the Swiss supplier is for the 40% of the total amount of the turbogenerator. The invoices of the rest of suppliers are for the 50% of the products or services. All of the invoices were paid.
On 28 th^ February 2018 arrives to the company. It was the payment of 200.000 of the import tax (non recoverable taxes). After the setting up and testing period, on 1st^ September 2018 the cogeneration plant (technical installation) is completed and ready to start its production. The estimated lifespan is 10 years On the same date, the company receives the invoices from all suppliers for the remaining 50% of the products or services. All the invoices were paid.
Beginning of the investment
1 st^ part invoices (40% or 50%)
End of the investment. The remaining invoices Euros 01-01-2017 31-12-2017 01-09- Swiss turbogenerator 5.000.000 500.000 2.000.000 2.500. Transport 100.000 50.000 50. Engineering technical study 65.000 32.500 32. Setting–up costs 120.000 60.000 60. Non recoverable taxes 200.000 0 200. Air compressor 175.000 87.500 87. Total 5.660.000 500.000 2.230.000 2.930.
To do: The entries of the transactions associated with this environmental investment.
