On 1st April, 2022, Shubham Limited purchased some land for 30 lakhs for the purpose of constructing a new factory. This cost of 30 lakhs included…

On 1st April, 2022, Shubham Limited purchased some land for 30 lakhs for the purpose of constructing a new factory. This cost of 30 lakhs included legal cost of 2 lakhs incurred for the purpose of acquisition of this land. Construction work could start on 1st May, 2022 and Shubham Limited provides you the details of the following costs incurred in relation to its construction: Particulars ₹ Preparation and levelling of the land 80,000 Employment costs of the construction workers (per month) 29,000 Purchase of materials for the construction 21,24,000 Cost of relocating employees to new factory for work 60,000 Costs of inauguration ceremony on 1st January, 2023 80,000 Overhead costs incurred directly on the construction of the factory (per month) 25,000 General overhead costs allocated to construction project by the Manager is 30,000. However, as per company’s normal overhead allocation policy, it should be - 24,000. The auditor of the company has support documentation for the cost of 15,000 only) and raised objection for the balance amount. The construction of the factory was completed on 31st December, 2022 and production could begin on 1st February, 2023. The overall useful life of the factory building was estimated at 40 years from the date of completion. However, it was estimated that the roof will need to be replaced 20 years after the date of completion and that the cost of replacing the roof at current prices would be 25% of the total cost of the building. The construction of the factory was partly financed by a loan of 28 lakhs borrowed on 1st April, 2022. The loan was taken at an annual rate of interest of 9%. During the period when the loan proceeds had been fully utilized to finance the construction, Shubham Limited received investment income of 25,000 on the temporary investment of the proceeds. You are required to assume that all of the net finance costs to be allocated to the cost of factory (not land) and interest cost to be capitalized based on nine months’ period. Based on the information given in the above scenario, answer the following multiple choice questions: