Mgt401 GDB

According to the standard of IAS, assets of one type should choose only one model at a time. It is difficult to disclose separately. So it is not possible to use different models for one kind of assets.

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You are required to identify with brief reasons at which value the inventory will be
recognized in each case according to IAS-2?
Part (a) Materials bought at cost of Rs.15, 000 for further processing and assembling in order to
fulfill a profitable special order. It is observed that cost price has fallen to Rs. 12,000 since
buying these items.
Part (b) Company ABC constructed a machine for a customer on a special order on a contract
price of Rs.20, 000. The order has recently been completed by the company at a cost of
Rs.19, 200. It has now been identified that an extra conversion cost of Rs.3, 000 will be required
in order to meet certain regulations. It is duly accepted by both parties that they will meet
equally the extra cost of conversion.
Question No. 2
Marks (5+5)
Haleeb Foods, a renowned name in dairy farming industry in Pakistan has incurred the
following expenditure during the current year. You are required to identify how these
costs should be treated in the financial statements of Haleeb Foods according to IAS-38?
Part (a) Rs.175, 000 spent on the design of a new product and it is assumed that this new design
will require the next three years period to be developed and ready for tested with a view to
production in four years time.
Part (b) Rs.650, 000 incurred on the testing of a new production system which designed by the
company itself and start to operate during the following accounting period. By using this new
system it is predicted that there will be a cut off in cost of production by 20%.