Reference no: EM132504688

Question - Entries for Asset Acquisition, Including Self-Construction

The following are transactions related to Producers Limited:

1. The City of Piedmont gives the company five hectares of land as a plant site. This land's fair value is determined to be $92,000.

2. Producers issues 13,000 common shares in exchange for land and buildings. The property has been appraised at a fair value of $1,630,000, of which $407,000 has been allocated to land, $887,000 to the structure of the buildings, $220,000 to the building HVAC (heating, ventilation, air conditioning), and $116,000 to the interior coverings in the buildings (such as flooring). Producers' shares are not listed on any exchange, but a block of 100 shares was sold by a shareholder 12 months ago at $57 per share, and a block of 200 shares was sold by another shareholder 18 months ago at $33 per share.

3. No entry has been made to remove amounts for machinery constructed during the year that were charged to the accounts Inventory, Supplies, and Salaries and Wages Expense and should have been charged to plant asset accounts. The following information relates to the costs of the machinery that was constructed:

Construction materials on hand in opening inventory used $23,000

Direct materials used in calibrating the equipment 625

Supplies used 980

Direct labour incurred 56,000

Additional variable overhead (over regular) caused by construction of machinery, excluding supplies used (charged to Inventory) 8,700

Fixed overhead rate applied to regular manufacturing operations 70% of direct labour cost

Lost revenue due to downtime during construction 45,000

Cost of similar machinery if it had been purchased from outside suppliers 125,000

Instructions -

a. Prepare journal entries on the books of Producers Limited to record these transactions. Assume that Producers Limited prepares financial statements in accordance with IFRS.

b. Determine how your answer in part (a) would change if Producers follows ASPE.