Model: Partial replacement of assets with special adjustment on estimation of present cost A power supply company has built a power station and the connecting lines during 2007. The following further particulars are furnished:
- In the year 2007, the company incurred an amount of Rs.9,00,000 towards purchase of machinery items and Rs.1,00,000 towards labour expenses. The company also used stores worth Rs.2,00,000 from its existing stock which was in the warehouse.
- Extension and replacement was carried out to the power station in 2010 as a cost of Rs.5,00,000 out of which material worth Rs.10,000 was used from the existing stock for replacement purposes. The extent of replacement was estimated as 20% of original cost.
- The cost of materials and wages in 2010 have gone up by 25%.
- The old materials discarded in the process of extension and replacement were of the value of Rs.50,000.
- Out of the above, material valued as Rs.30,000 was used for extension purposes and the balance not being used was sold for Rs.20,000.
You are required to show the journal entries in respect of the above transaction for the year 2010. Workings should form part of your answer.