1. CASE STUDY 3
Gain or loss on de recognition
On 1st Jan 2005, Janaki Ltd acquired
production equipment in the amount of
Rs.2,50,000. The following further costs were
incurred:
Rs
Delivery 18,000
Installation 24,500
General administration 3,000
costs of an indirect nature
The installation and setting up period took 3
months and a further amount of Rs.21,000 was
spent on start-up costs directly related to
bringing the asset to its working condition.
Monthly managerial reports indicated that for
the first 5 months, the production quantities
for this equipment resulted in an initial
operation loss of Rs 15,000 because of small
quantities produced. The months thereafter
show much more positive results.
The equipment has an estimated useful life of
14 years and a residual value of Rs
18,000.Present value of estimated dismantling
costs amount of Rs12,500.

2. The company adopted straight line
depreciation. The asset was sold on 30.6.09 for
Rs.3,00,000. The company follows calendar
year as its accounting period. Incremental
borrowing rate of the company is 10% p.a.
What value is originally recorded as the
historical cost of the asset and what are the
annual charges in the income statement
related to the consumption of the economic
benefits embodied in the assets?
Find out gain/loss of derecognition.
How should the company recognize gain and
reverse the decommissioning liability?