Marvel Limited requires a generator for its factory in Karachi.

The following information is

relevant for the acquisition.

1) Marvel Limited issued a special Bond of Rs. 10,000,000 carrying a coupon rate of
12% per annum on 1st January 2014. The bond will mature after 5 years. The loan
will be used to build a new generator (qualifying asset) and to pay the related
expenses, with the remaining amount to be invested in company’s business.

2) Marvel Limited started construction of new generator with the help of General
Electric (GE) USA on 1st Feb. 2014. The generator is estimated to have a useful life
of 6 years and NIL residual value. Marvel had to pay Rs. 6,000,000 (in equivalent
US$) in advance to GE on the same date.

3) On 1st August 2014, the Company paid Rs. 1,500,000. It included Rs. 1,400,000 on
importing of generator parts and Rs. 100,000 spent to build a concrete
foundation to house the generator. The foundation has an expected life of 20
years.

4) On 1st November 2014, the directors of the company decided to install a sound
reducing canopy along with the generator and ordered a canopy with a useful life of 5
years that will cost Rs. 1,000,000 and NIL residual value. It was further agreed that
the generator will not be used until the canopy is installed because local laws do not
permit such use without canopy.
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5) Installation was completed on 31 December 2014 with further cost of Rs. 50,000
incurred and paid on labor and miscellaneous expenses related to construction of
the generator. The canopy was also paid for and installed on 31st December 2014.
6) On 1st, Jan 2016, the company revised the estimate of total useful life of the
generator to be 12 years. The life of canopy and foundation will remain the same as
the earlier estimates.

7) On 5thJanuary 2018, a small fire broke up. The damage to generator was
minimal and repairs costing Rs. 50,000 were sufficient. The canopy was completely
damaged and had to be replaced by a new canopy costing 1,200,000. The new
canopy had a useful life of 6 years.

8) On 1st January 2020, the generator was exchanged with a newer model available in
the local market. Marvel Limited had to pay Rs. 2,000,000 and give the old
generator in exchange for the new model. The new model has a list price of Rs.
6,000,000 but usually sells at a discount of 10%. The new generator has a build-in
canopy and old canopy will be scrapped.

9) Cost of dismantling the old generator will be Rs. 200,000. The cost of installing
the new model will be Rs. 250,000. Both costs would be paid by Marvel Limited from
own sources.