1. CASE STUDY 1
Rama Ltd purchased a plant for a gross price Rs.200
million. It was given a rebate of 0.5% rebate. The
gross price includes excise duty Rs.20 million for
which the buyer entity will get tax refund and non-
refundable VAT of Rs.10 million. It has also incurred
Rs.15 million for transportation costs, handling
charges and insurance, Rs.5 million for installation
and Rs.3 million for testing and professional fees.
It has earned Rs.0.2 million from selling goods
produced out of testing. Rama Ltd has borrowed
Rs.100 million for financing the new purchase @
10%. The entire process of purchase to make the
operational took nearly 15 months. Finance was
outstanding during this period.
Rama Ltd also earned Rs.0.1 million from short-term
parking of the money borrowed pending payment to
supplier and meeting all costs. What should be the
initial cost of the plant ?