Wilderness owns and operates an item of plant that cost $640,000 and had accumul

Question

Wilderness owns and operates an item of plant that cost $640,000 and had accumulated depreciation of $400,000 at 1 October 20X4. It is being depreciated at 12.52% on cost. On ! April 20X5 (exactly half way through the year) the plant was damaged when a factory vehicle collided into it. Due to the unavailability of replacement parts, it is not possible to repair the plant, but it still operates, albeit at a reduced capacity. Also it is expected that as a result of the damage the remaining life of the plant from the date of the damage will be only two years. Based on its reduced capacity, the estimated present value of the plant in use is $150,000. The plant has a current disposal value of $20,000 (which will be nil in two years time), but Wilderness has been offered a trade-in value of $180,000 against a replacement machine which has a cost of S1 million (there would be no disposal costs for the replaced plant) Wilderness is reluctant to replace the plant as it is worried about the long-term demand for the product produced by the plant. The trade-in value is only available if the plant is replaced. Required: Prepare extracts from the statement of financial position and income statement of Wilderness in respect of the plant for the year ended 30 September 20X5

Explanation / Answer

1 If the Plant is not replaced: WILDERNESS Extract of Statement of Financial Position 30 September 2015 Fixed Assets: Plant        6,40,000 Less: Accumulated Depreciation        4,90,048 Total Fixed Assets        1,49,952 Extract of Income Statement 30 September 2015 Depreciation            49,984 CALCULATION: Cost of the plant        6,40,000 Accumulated Depreciation Upto 1 Oct 2014        4,00,000 1 Oct 2014 - 30 Mar 2015 (6 months)            40,064 (being cost 640000 * 12.52% * 6/12) Balance Value of Plant        1,99,936 This Value has to be depreciated over 2 years with terminal value being NIL Hence, Depreciation for 1 April 2015 - 30 Sept 2015 = 199936 * 6/24 (24 being 2 years in months) = 49984 Total Accumulated Depreciation = 400000 + 40064 + 49984 = 490048 1 If the Plant is replaced: WILDERNESS Extract of Statement of Financial Position 30 September 2015 Fixed Assets: Plant        8,20,000 Less: Accumulated Depreciation            51,332 Total Fixed Assets        7,68,668 Extract of Income Statement 30 September 2015 Loss on Disposal of Plant            19,936 Depreciation            51,332 CALCULATION: Original Cost of the plant      10,00,000 (-) Trade-in Value        1,80,000 Net Cost of the plant        8,20,000 Depreciation for 1 April 2015 - 30 Sept 2015            51,332 (820000 * 12.52% * 6/12) Assuming same rate of deprecation as the original plant. Loss on Disposal = Written Down Value of the plant as on 1 Apr 2015 - Trade in value on replacement = 199936 - 180000 = 19936

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