Professional Documents
Culture Documents
Question 1:
Surplus funds are to be invested @ 6% p.a. Rs. 60 million loan was disbursed by U
bank on 1 Jan 2017.
Required:
Borrowing cost to be capitalized in 2017.
Cost of CWIP on 31 Dec 2017.
Note: Payment is to be made on the date of bill.
Question 2:
Average balances outstanding on the running finances accounts during 2017 were.
U bank Rs. 75m 12% p.a.
A bank Rs.45m 15% p.a.
Required:
Borrowing cost to be capitalized in 2017
Cost of CWIP on 31 Dec 2017
Note: Payment is to be made on the date of bills.
Question 3
On November 01, 2001 Jamal Nasir & Company contracted Wardah Construction Company to have a
building constructed for Rs. 3 millions. Jamal Nasir & Company made the following payments to the
construction company during 2002.
Construction was completed and the building was ready for occupancy on December 31, 2002. Jamal Nasir
& Company had the following debt outstanding at December 31, 2002:
Other Debts
ii) 10%, 5-year loan payable, dated December 31, 199, with interest payable annually on December 31 –
Rs. 1.1 million.
iii) 12%, 10-year bonds issued on December 31, 1997, with interest payable annually on December 31 –
Rs. 1.2 million.
Required:
Keeping in view the requirement of IAS 23, calculate the following:
a) Total actual interest cost for the year.
b) Capitalization rate of borrowing cost.
c) Interest cost to be capitalized.
d) Cost of the building.
Definitions:
Borrowing cost:
Are interest and other cost that an entity incurs in connection with it borrowings.
Qualifying Assets
Is an asset that necessarily take substantial time to construct, manufacture or develop.
Borrowings that are obtained to acquire a qualifying asset Capitalize in cost of the qualifying asset
Borrowing that is obtained for other purposes Expensed out in profit and loss A/C
Borrowing by Companies
General borrowing An entity uses its existing financing facilities to acquire a qualifying asset.
Question 1:
Borrowing cost to be capitalized Rs.m
Actual borrowing cost incurred (Rs.60m X 12%)-payable to U Bank 7.2
Less: Income from temporary investment for investing the unutilized amount 1.8
Net 5.4
Interest income
45 X 6% X 3/12 0.675
30 X 6% X 6/12 0.9
15 X 6% X 3/12 0.225
Total 1.8