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Tangible calculation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Tangible calculation

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by P2-D2.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • October 21, 2021 at 5:40 pm #638658
    Nikitagarwal
    Participant
    • Topics: 153
    • Replies: 146
    • ☆☆☆

    Hi Chris,
    Hope you are well!
    Below is the question:
    An entity started construction on a building for its own use on 1 April
    20X7 and incurred the following costs:
    $000
    Purchase price of land 250,000
    Stamp duty 5,000
    Legal fees 10,000
    Site preparation and clearance 18,000
    Materials 100,000
    Labour (period 1 April 20X7 to 1 July 20X8) 150,000
    Architect’s fees 20,000
    General overheads 30,000
    –––––––
    583,000
    –––––––
    The following information is also relevant:
    • Material costs were greater than anticipated. On investigation, it was
    found that materials costing $10 million had been spoiled and
    therefore wasted and a further $15 million was incurred on materials
    as a result of faulty design work.
    • As a result of these problems, work on the building ceased for a
    fortnight during October 20X7 and it is estimated that approximately
    $9 million of the labour costs relate to this period.
    • The building was completed on 1 July 20X8 and occupied on 1
    September 20X8.

    My question – For materials how did they know the exact distribution that 75m will be inckuded and 25m to be excluded ?
    and what is to be donw with 115 m amount ?

    October 23, 2021 at 9:01 am #638845
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6453
    • ☆☆☆☆☆

    Hi,

    In the first bullet point we are told about $10 million of spoiled materials and $15 million spent that was due to a faulty design. Neither of these can be capitalised, and they total the $25 million that is excluded from the cost.

    The treatment of the $115 million amount depends on what it relates to and I cannot immediately see what it does relate to or where it comes from. If you could let me know then I could help further.

    Thanks

  • Author
    Posts
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