Tutorial MFRS 123 - BORROWING COST PDF

Preview

Summary

Tutorial MFRS 123- Borrowing cost (FINANCIAL REPORTING - FAR 510)...

Description

Question 10 – NAIDU Bhd a) The capitalization of borrowing costs as part of a qualifying asset should commence on 1 August 2009 and not 1 July 2009 when the loan was obtained. The capitalization of borrowing costs should be suspended from 1 February 2010 until 30 April 2010. This is because the active construction of the building was interrupted due to the shortage of the manpower. The capitalization of borrowing costs should cease on 31 March 2012 as the qualifying asset was ready for its intended use. The borrowing costs not eligible for capitalization above should be expensed in the period in which they are incurred. a) Borrowing cost to be capitalized = 3,000,000 x 2.5% x (29/12) = RM 181,250

Question 11 – HYDE Bhd a) The borrowing costs of the funds used to finance the construction can be capitalized and include them as part of the costs of the assets provided that they meet the criteria of capitalization. Capitalization of borrowing costs should commence on 1 May 2011. Borrowing costs are not capitalized once the activities necessary to prepare the qualifying asset for intended use or sale are completed. b) Borrowing costs to be capitalized = 3,000,000 x 12% x (8/12) = RM 240,000

Question 12 – RESIDENCE Bhd a) MFRS 123 defines a qualifying asset as ‘an asset that necessarily takes a substantial period of time to get ready for its intended use or sale’. For example, the construction of a building, long term construction contracts, research and development, construction of investment property and production of inventories that take a considerable period of time to bring to a saleable condition. b) Borrowing cost to be capitalized = 25,000,000 x 8% x (9/12) = RM 1,500,000

Question 13 – MAYA Bhd a) Incurred (RM) 2011

2012 2012

Interest on loan (4mil x 10%) Issue cost (4mil x 2%) (-) Investment return (1.2 mil x 6%) Total Interest on loan (4mil x 10%) Interest on loan (4mil x 10%)

10mnths: (10/12) 333,333 80,000 10mnths: (10/12) (60,000 353,333 (1 year) 400,000 (1 year) 400,000

Capitalised (RM) 9mnths : (9/12) 300,000

Expensed (RM) 33,333 80,000

9mnths : (9/12) (54,000) 246,000 9mnths : (9/12) 300,000 8mnths : (8/12) 266,667

113,333 100,000 133,333

b) The company should cease the capitalization of borrowing cost: 1. When all activities necessary to prepare the qualifying asset for its intended use or sale are complete 2. When development activities are interrupted or suspended.

Question 14 – PANDAN Bhd a) Determine the initial cost of the land and building on 30 June 2013. Initial cost for land:

Purchase price (+) Directly attributable cost Demilished cost Total

RM 800,000 60,000 860,000

Initial cost for building:

Construction costs (-) Rectification fees (-) Internal profit on material (20/120) x 120,000 (+) Borrowing cost (500,000 x 8% x 21/12) Total

RM 1,800,000 (30,000) (20,000) 70,000 1,820,000

Question 15 – NEXUS Bhd a) Calculate the amount of borrowing costs to be capitalized.

Borrowing cost (-) Investsment return Borrowing cost capitalized

(2,000,000 x 10% x 12/12) 200,000 (1/4 x 2,000,000 2% x 12/12) 10,000 190,000

b) Determine the carrying amount of the building as at 30 June 2013 when the reconstruction is completed. Show the necessary workings....