Exercise 10-7 Wildhorse Manufacturing Inc. is installing a new plant at its prod

Question

Exercise 10-7

Wildhorse Manufacturing Inc. is installing a new plant at its production facility. It has incurred these costs:

Determine which costs Wildhorse Manufacturing Inc. can capitalize in accordance with IAS 16.

Cost of the manufacturing plant (cost per supplier’s invoice plus non-recoverable taxes) $2,500,000 Initial delivery and handling costs 203,000 Cost of site preparation 610,000 Consultants used for advice on the acquisition of the plant 709,000 Interest charges paid to supplier of plant for deferred credit 205,000 Estimated dismantling costs to be incurred after seven years 306,000 Operating losses before commercial production 408,000

Explanation / Answer

Cost of asset = $2500000

Inital Delivery Cost =$203000

Site Preparation =$610000

Consultants Fees =$709000

Interest Paid on defered credit =$205000

Estimated Dismantling Cost =$306000

Operating loss before production = NIL

TOTAL COST OF ASSET   =$4533000

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