Cost of airconditioning plant, Cost Accounting

Devprop Leasing an industrial property development company, that typically develops warehouse and industrial complexes in new or underdeveloped areas, operates these complexes as fully fitted with equipment and office furniture for a number of years (never more than 10 years) and having created a thriving complex ultimately sells these complexes for a substantial profit.  (Details inrespect  to normal investment and operating activities are given below).  The corporation purchases its warehouse/industrial complexes from an associated (but separate) construction company at cost (including land and buildings and initial equipment etc).

Details of Discretionary Variables

The initial values of the discretionary are provided in the table on page 20.   The following details are further descriptions and parameters that are required for the investment analysis model.

Investment Project Term

Investment projects will be for a minimum of three years and for the sake of this assignment it can be assumed that no investment will exceed 10 years.  Each schedule must allow for these parameters.  In addition where an investment is for less than 10 years the schedules should be designed in a manner that does not show zero values nor show values (negative or otherwise) in years other than those for which the investment exists

The Expected Life of Investment Project:
will be determined by market demographics, economic forecasts, etc. but will always be between three and ten years.

Initial Investment

The total cost of complex is made up of the following variables

1. The cost of the Building

  • For accounting purposes all buildings are expected to have a useful life of 25 years with no scrap value. Assume straight line depreciation.
  • Repairs and Maintenance Costs will generally be related to the level of activity in the building.  It has been determined that R&M costs will be a percentage of Gross Rental Revenue.

2. The cost of Airconditioning Plant

  • The useful life of the Airconditioning Plant will vary according to the type of plant purchased and the level of maintenance.  The Plant is not expected to have a material scrap value.  The Airconditioning plant will be replaced at least once every five years  and depending on the level of maintenance may be replaced as frequently as once every three years.  Assume straight line depreciation.  Cost of replacement is expected to be the original cost of theequipment replaced plus an allowance for annual inflation (compounding annually).
  • Airconditioning Plant may have a warranty. If a warranty exists it will be between 1 & 3 years.  During the warranty period there is no repairs and maintenance costs.  Outside the warrant periods R&M costs will be the same amount (determined by a pre-arranged maintenance contract) per annum over the remaining life of the Plant.
Posted Date: 3/2/2013 12:38:27 AM | Location : United States

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