Worldwide Fuels, a public limited company, is preparing its financial statements for the year ending 31 December 2020. The exhibits contain information relevant to the question. Exhibit 1- Construction of energy generating facility On 1 February 2020 Worldwide Fuels started the construction of an energy generating facility. The following costs were incurred during the construction: £000 Freehold land Site preparation Materials 1,500 725 Direct labour costs Legal fees 3,500 8,250 1,000 General overheads 575 To aid construction of the energy generating facility, Worldwide Fuels issued a £10 million unsecured loan on 1 February 2020. The loan carried an interest rate of 15% per annum and is repayable on 1 February 2025. On 30 June 2020, Worldwide Fuels finalised the construction of the energy generating facility. The facility was brought into use on 1 August 2020. The facility has an expected useful economic life of 30 years and that it will have no residual value at that date. Worldwide Fuels uses the straight- line method for calculating depreciation. Worldwide Fuels has a legal requirement to decommission the facility at the end of its estimated useful life. The directors of Worldwide Fuels estimated the costs of this decommissioning to be £32 million - based on prices prevailing at 30 June 2050. At an appropriate discount rate the present value of the cost of decommissioning the facility is £9 million.
Worldwide Fuels, a public limited company, is preparing its financial statements for the year ending 31 December 2020. The exhibits contain information relevant to the question. Exhibit 1- Construction of energy generating facility On 1 February 2020 Worldwide Fuels started the construction of an energy generating facility. The following costs were incurred during the construction: £000 Freehold land Site preparation Materials 1,500 725 Direct labour costs Legal fees 3,500 8,250 1,000 General overheads 575 To aid construction of the energy generating facility, Worldwide Fuels issued a £10 million unsecured loan on 1 February 2020. The loan carried an interest rate of 15% per annum and is repayable on 1 February 2025. On 30 June 2020, Worldwide Fuels finalised the construction of the energy generating facility. The facility was brought into use on 1 August 2020. The facility has an expected useful economic life of 30 years and that it will have no residual value at that date. Worldwide Fuels uses the straight- line method for calculating depreciation. Worldwide Fuels has a legal requirement to decommission the facility at the end of its estimated useful life. The directors of Worldwide Fuels estimated the costs of this decommissioning to be £32 million - based on prices prevailing at 30 June 2050. At an appropriate discount rate the present value of the cost of decommissioning the facility is £9 million.
Chapter16: Accounting Periods And Methods
Section: Chapter Questions
Problem 40P
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Transcribed Image Text:Worldwide Fuels, a public limited company, is preparing its financial statements for the
year ending 31 December 2020. The exhibits contain information relevant to the
question.
Exhibit 1- Construction of energy generating facility
On 1 February 2020 Worldwide Fuels started the construction of an energy generating
facility. The following costs were incurred during the construction:
£000
Freehold land
Site preparation
1,500
725
Materials
3,500
8,250
1,000
Direct labour costs
Legal fees
General overheads
575
To aid construction of the energy generating facility, Worldwide Fuels issued a £10
million unsecured loan on 1 February 2020. The loan carried an interest rate of 15%
per annum and is repayable on 1 February 2025. On 30 June 2020, Worldwide Fuels
finalised the construction of the energy generating facility. The facility was brought into
use on 1 August 2020. The facility has an expected useful economic life of 30 years
and that it will have no residual value at that date. Worldwide Fuels uses the straight-
line method for calculating depreciation. Worldwide Fuels has a legal requirement to
decommission the facility at the end of its estimated useful life. The directors of
Worldwide Fuels estimated the costs of this decommissioning to be £32 million -
based on prices prevailing at 30 June 2050. At an appropriate discount rate the present
value of the cost of decommissioning the facility is £9 million.
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