Financial Reporting-I

Assignment(Week-11)
IAS-23 Borrowing Costs
Q.No.1: Momin Limited had two outstanding loans as at July 01, 2017:
 Rs. 100 million, which carries interest rate of 12 percent per annum
 Rs. 60 million, which carries interest rate of 10 percent per annum

On July 01, 2017, Momin Limited began construction of a qualifying asset using above-
mentioned borrowings. Following amounts were drawn for expenditure on the project:
Rs. 15 million on November 01, 2017
Rs. 10 million on March 01, 2018
Required:
Calculate borrowing cost, which was capitalized for the qualifying asset as at June 30, 2018.
Q.No.2: Ahad Limited has been constructing a property for the last 10 months. At December 31,
2012 (year-end) the property was nearing completion and the costs incurred to date were as
under:

Rs. in million
Materials 500
Labour 250
Other directly attributable overheads 200
Interest on borrowings 70

It is the company’s policy to capitalize interest on specific borrowings raised for the purpose of
financing a construction. The amount of borrowings outstanding at December 31, 2012 in respect
of this project is Rs. 800 million and the interest rate is 10.50% per annum.
During the six months to June 30, 2013 the project was completed, with the following additional
costs incurred:

Rs. in million
Materials 150
Labour 100
Other directly attributable overheads 50

Required:
You are required to calculate the following as per IAS 23:
 1) Borrowing cost incurred for the year ended December 31, 2013 on the project.
2) Cost of property as at December 31, 2013.

Q.No.3: RWP Limited began construction of a building, a qualifying asset on January 01, 2018,
which was completed on December 31,2018. Details of construction cost incurred during the
period are as follows:

 On January 01, 2018, the company incurred a cost of site preparation amounting to
Rs.2,000,000.
 On February 01, 2018, a cost of Rs. 12,000,000 was incurred for the purchase of
materials.
 Labour cost of Rs.10,500,000 was incurred evenly over the period from February 01,
2018 till December 31,2018 and payments were made at the beginning of each month.
The company has following general loans outstanding during the year:

Banks Amount of Interest Rate Date of Loan Date of Loan

Loans (Rupees) Raised Repaid
UBL 12,500,000 15 % January 01, 2018 December31,2018
MCB 8,000,000 10 % April 01, 2018 September30,2018
NBP 4,000,000 12 % June 01, 2018 December31,2018

Required:

Calculate the following:

(i) Interest incurred for the year ended December 31, 2018.
(ii) Weighted average interest rate (Capitalization rate)
(iii) Interest to be capitalized

Instructions:

(i) Deadline for submission of assignment is December 18, 2020.

(ii) Students must answer the questions in their own handwriting. Typed answers will not be
acceptable.
(iii) Please write your full name, enrollment No and page number at the top of each page.
(iv) Scan and save in pdf format only, but not in Zip file. All pages containing answers should be
scanned and converted into one document by saving in PDF form, to be uploaded on LMS.
(v) Please save the solution of assignment by Name and indicating FR-I.