ExpertACCA · Question 16 · Tangible Non-Current Assets
Section B - Case 1: Nimbus Renewables
Scenario: On 1 January 20X4, Nimbus Renewables began constructing an offshore wind farm. The following costs were incurred:
- Materials and components: $10,000,000
- Direct labor: $5,000,000
- Testing the turbines (net of $200,000 from selling power generated during testing): $800,000
- General administrative overheads: $1,200,000
By law, Nimbus must decommission the wind farm at the end of its 20-year useful life. The estimated future cost of decommissioning is $4,000,000. Nimbus uses a discount rate of 5%. The present value of $1 payable in 20 years at 5% is 0.377.
Nimbus also leased specialized maintenance vessels on 1 January 20X4 for 5 years. The annual lease payment is $2,000,000 payable in arrears on 31 December. The interest rate implicit in the lease is 6%. The present value of an ordinary annuity of $1 for 5 years at 6% is 4.212.
Question: What is the initial cost of the wind farm recognized in Property, Plant and Equipment on 1 January 20X4?
Section B - Case 1: Nimbus Renewables
Scenario: On 1 January 20X4, Nimbus Renewables began constructing an offshore wind farm. The following costs were incurred:
- Materials and components: $10,000,000
- Direct labor: $5,000,000
- Testing the turbines (net of $200,000 from selling power generated during testing): $800,000
- General administrative overheads: $1,200,000
By law, Nimbus must decommission the wind farm at the end of its 20-year useful life. The estimated future cost of decommissioning is $4,000,000. Nimbus uses a discount rate of 5%. The present value of $1 payable in 20 years at 5% is 0.377.
Nimbus also leased specialized maintenance vessels on 1 January 20X4 for 5 years. The annual lease payment is $2,000,000 payable in arrears on 31 December. The interest rate implicit in the lease is 6%. The present value of an ordinary annuity of $1 for 5 years at 6% is 4.212.
Question: What is the initial cost of the wind farm recognized in Property, Plant and Equipment on 1 January 20X4?
Answer options:
$16,508,000
$17,308,000
$18,508,000
$19,800,000
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