Reference no: EM131385636

Sema pic, a company in the heavy engineering industry, carried out an expansion programme in the 2016 financial year, in order to meet a permanent increase in contracts. The company selected a suitable site and commissioned a survey and valuation report, for which the fee was £1,500. On the basis of the report the site was acquired for £90,000.

Solicitors fees for drawing up the contract and conveyancing were £3,000. Fees of £8,700 were paid to the architects for preparing the building plans and overseeing the building work. This was carried out partly by the companys own workforce (at a wages cost of £11,600), using company building materials (cost £76,800), and partly by subcontractors who charged £69,400, of which £4,700 related to the demolition of an existing building on the same site.

The completed building housed two hydraulic presses. The cost of press A was £97,000 (ex-works), payable in a single lump sum two months after installation. Sema was given a trade discount of 10% and a cash discount for prompt payment of 2%. Hire of a transporter to collect the press and to convey it to the new building was £2,900. Installation costs were £2,310, including hire of lifting gear, £1,400. Press B would have cost £105,800 (delivered) if it had been paid in one lump sum.

However, Sema opted to pay three equal annual instalments of £40,000, starting on the date of acquisition. Installation costs were £2,550, including hire of lifting gear, £1,750.

The whole of the above expenditure was financed by the issue of £500,000 7% Loan notes (on which the annual interest payable was £35,000). Before the above acquisitions were taken into account, the balances (at cost) on the non-current asset accounts for premises and plant were £521,100 and £407,500 respectively.