Property, Plant and Equipment (PPE)
TechMan has primarily leased its non-current assets since its inception. Given the post-pandemic market expansion and the company’s growth, the management of TechMan is contemplating the purchase of a manufacturing facility. After exploring various options and negotiating, they decided to purchase a property comprising land and a factory for a total of $1,100,000 (GST inclusive). This price is considered favorable compared to the fair market value, which is broken down as follows:
Assets
Land Factory Total
Fair value
$700,000
$600,000
$1,300,000
Page 2 of 9In addition to the purchase price, TechMan incurs several others expenses:
• Acquisition of new manufacturing equipment for $165,000 (GST inclusive), with an expected life span of five years and a residual value of $10,000.
• Legal fees for land ownership transfer amounting to $10,000 (GST inclusive).
• Despite of having a useful life of 15 years and estimated residual value of $100,000, the factory need
some adjustments at the initial stage to support TechMan’s operation. The factory refurbishment costs include $20,000 (GST exclusive) for electrical upgrades and $15,000 (GST exclusive) for safety equipment installation.
• Annual insurance for the property costing $12,000 (GST inclusive).
• Delivery and installation charges for the new equipment amounting to $5,500 (GST inclusive), and a 5-
year warranty costing $3,300 (GST inclusive).
• Equipment safety certification by an authorized body, costing $4,400 (GST inclusive).
• TechMan adopts the cost model for its newly purchased non-current assets.
Given the surge in demand recently, the business has seen a significant increase in the demand for its products. The owners believe that the existing non-current assets should be valued higher and it would be more appropriate to change to the revaluation model of measuring non-current assets.