Question Tag: Capitalization

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FR – Nov 2024 – L2 – Q2c – Intangible Assets and Their Measurement

Determining the correct accounting treatment for various intangible assets in Dolo LTD's financial statements, including licensing, software, and book rights.

Question

Question:

Dolo LTD, a market leader in the pharmaceutical industry, incurred the following expenditures during the financial year ended 31 December 2023:

Expenditure Item	Amount (GH¢’000)	Additional Information
Licence to operate in the pharmaceutical industry (10-year validity from January 2023)	200	Intangible asset
Costs incurred in setting up a website for a new product	20	The website will be developed in 2024
Purchase of 295 personal computers on 1 July 2023 (three-year useful life)	840	Excludes software costs
Windows operating system (for 295 PCs)	530	Perpetual software license
Microsoft Office software (for 295 PCs)	24	Three-year software license
Induction training for new staff	430	Staff training for new hires
Book rights purchased from another entity a few years ago	90	The rights have an indefinite useful life
Independent valuation of book rights as of 31 Dec 2023	240	Valued by an independent expert

Dolo LTD’s policy is to use the revaluation model for intangible assets where a market valuation is available.

Required:
Determine the carrying amount of intangible assets at 31 December 2023, in accordance with IAS 38 – Intangible Assets and IFRS.

Answer

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Tags: Amortization, Capitalization, IAS 38, Intangible Assets, Licensing, Revaluation Model, Software Costs, Valuation
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: Nov 2024

FR – Nov 2014 – L2 – Q5 – Property, Plant, and Equipment (IAS 16)

Discuss the conditions for capitalizing borrowing costs and calculate the total interest to be capitalized for VITAMAX Plc.

Question

In accordance with IAS 23, Borrowing Costs that are directly attributable to the acquisition, construction, or production of a qualifying asset form part of the cost of that asset, while other borrowing costs are recognized as an expense.

Required:

a. State the conditions wherein capitalisation of borrowing costs:

i. Commences

ii. Should not be suspended

iii. Should cease (6 Marks)

b. VITAMAX Plc. is constructing a factory that will take about 18 months to complete. The company commenced construction on 2 January 2013. The following payments were made during the year:

Date	Amount (N’000)
31 January	40,000
31 March	90,000
30 June	20,000
31 October	40,000
30 November	50,000

The first payment on 31 January was funded from the company’s pool of debts. However, the company succeeded in raising Medium-Term Loan Notes for an amount of N160,000,000 on 31 March 2013 at a simple interest rate of 9 percent per year, calculated and payable monthly in arrears. These funds were specifically used for the construction. Excess funds were temporarily invested at 6 percent monthly in arrears and payable in cash. The pool of debts were again used for a N40,000,000 payment on 30 November 2013 which could not be funded from the Medium-Term Loan Notes.

The construction project was temporarily halted for three weeks in May 2013 when substantial technical and administrative work was carried out.

The following amounts of debts were outstanding at the reporting date of 31 December 2013:

Description	Amount (N’000)
Medium-Term Loan Notes	160,000
Bank Overdraft	240,000
10% 7-Year Notes	1,800,000

For the bank overdraft, the weighted average amount outstanding during the year was N150,000,000 and the total interest charged by the bank amounted to N6,760,000 for the year.

Required:

Calculate the total amount of interest to be capitalized. (9 Marks)

Answer

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Tags: Borrowing Costs, Capitalization, Financial Reporting, IAS 23, VITAMAX Plc
Level: Level 2

Topic: Property, Plant, and Equipment (IAS 16)
Series: NOV 2014

PSAF – Nov 2015 – L2 – Q1 – International Public Sector Accounting Standards (IPSAS)

Evaluate financial treatment for leased machinery, borrowing costs, and investment properties in a public sector agency's financial statements.

Question

Top-Hill State Investment Agency, a government business entity, provided the following transactions for the financial year ended December 31, 2014:

a. On January 1, 2014, the company acquired machinery on lease with a fair value of ₦500,000 and a residual value of NIL at the end of its economic life of five years. The lease payment of ₦139,778 was made first on January 1, 2014, with payments due on the first day of each financial year. The implicit interest rate was set at 8%.

b. Top-Hill State Investment Agency incurred borrowing costs of ₦5 million for the financial year ended December 31, 2014, with ₦1.2 million specifically related to constructing a qualifying asset. The Agency’s policy is to capitalize borrowing costs in line with IPSAS 5 on “Borrowing Costs.”

c. The Agency applies the cost model to its investment properties. At the end of the 2013 financial year, the investment properties carried a value of ₦4.5 million. The Agency depreciates these properties using a 25% reducing balance. The fair value as of December 31, 2014, was ₦4.2 million.

Required:

Explain how the newly leased machinery should be treated in the Financial Statements (Extracts) of the Agency.
State the amount to be taken to the Statement of Financial Performance (Extracts) and the Statement of Financial Position (Extracts) for the year ended December 31, 2014. (20 Marks)
Explain how the ₦5 million borrowing costs should be treated in the financial statements (Extracts) and state the amount to be recorded in the Statement of Financial Performance (Extracts) and the Statement of Financial Position (Extracts) for the year ended December 31, 2014. (4 Marks)
Identify and explain the accounting entries required as of December 31, 2014, to account for the Investment Properties. Show workings. (6 Marks)

Answer

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Tags: Borrowing Costs, Capitalization, Investment properties, IPSAS Compliance, Leased Machinery
Level: Level 2

Topic: International public sector accounting standards
Series: NOV 2015

CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs

Question

Dompoase Ltd incurred the following borrowing costs during the financial year 2018:

GH¢’000
Overdraft interest	12
Foreign currency loan interest (correctly translated into GH¢)	84
Foreign currency loan exchange differences on capital	140

In addition, a three-year fixed-rate GH¢2 million loan was taken out on 1 January 2018 at 6.5%. A loan set-up fee was charged at GH¢20,000. This increased the effective interest rate on the loan to 6.88%.

Required:
Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

Answer

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Tags: Borrowing Costs, Capitalization, Foreign Currency Loan, Interest, Overdraft
Level: Level 3

Series: MAY 2020

FR – May 2019 – L2 – Q7b – Impairment of Assets (IAS 36)

Preparation of financial statements extracts for intangible assets and associated costs for Soft Solutions Limited.

Question

b. During the year ended 31 December, 2018 Soft Solutions Limited carried out
the following transactions:

N720m was spent on developing a new “Microfinance Software” which
received the approval of software regulatory authority in Nigeria on 1 July,
2018 and is proving commercially successful.
The financial controller expects the project to be in profit within 12 months
of the approval date. The patent was registered with Federal Ministry of
Trade and Investment on 1 July, 2018; it costs N180m and remains in force
for three years.
On 1 September, 2018 Soft Solutions Limited acquired an up to date list of
Global Positioning System (GPS) at a cost of N60m and the company has
been visiting the tracked customers to explain the operations of the new
microfinance software in rural and urban areas. This is expected to generate
sales throughout the life-cycle of the microfinance software.
A research project was set up on 1 October, 2018 which is expected to result
in a new banking software called “Recent Bankers”. N24m was spent on
computer equipment and N48m on staff salaries. The equipment has an
expected life of four years

Required:

Using the above information:
i. Prepare the extract of statement of financial position of Soft Solutions
Limited as at 31 December, 2018. (5 Marks)
ii. Prepare the summary of the cost to be charged to statement of profit or
loss for the year ended 31 December, 2018. (2 Marks)

Answer

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Tags: Capitalization, Financial Position, IAS 38, Intangible Assets, Profit or Loss
Level: Level 2

Topic: Impairment of Assets
Series: MAY 2019

FR – May 2019 – L2 – Q7a – Property, Plant, and Equipment (IAS 16)

Discussion of the recognition criteria for internally developed intangible assets under IAS 38 and how to account for them.

Question

Soft Solutions Limited is a Nigerian company that specializes in the development of software applications. The company has been in operation for over 16 years and has invested considerable amounts of money internally in developing accounting and banking software. The treatment of these assets is prescribed by IAS 38 – Intangible Assets.

Required:
a. As a partly qualified accountant working in the accounts department of Soft Solutions Limited, the financial controller of the company asked you for a memo which addresses the following:
i. Whether internally developed intangible assets should be recognized and, if so, how should they be recorded initially and subsequently accounted for. (5 Marks)
ii. The criteria for revaluation of intangible assets? (3 Marks)

Answer

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Tags: Capitalization, Development Costs, IAS 38, Intangible Assets, Recognition Criteria
Level: Level 2

Topic: Property, Plant, and Equipment (IAS 16)
Series: MAY 2019

FR – May 2019 – L2 – Q6b – Accounting for Government Grants (IAS 20)

Calculation of the amount to be capitalized for qualifying capital work-in-progress under IAS 23.

Question

Jacko Company Limited has three major sources of borrowings stated below as at 1 January 2018.

Types	Average Loan in the Year (N’000)	Interest Expense Incurred in the Year (N’000)	Income Earned from Temporary Investment of the Amount Borrowed (N’000)
7 years loan notes	128,000	20,000	12,480
10 years loan notes	160,000	14,400	—
Bank overdraft	80,000	14,400	—

The 7 years loan notes have been specifically raised to fund the building of a qualifying asset.

During the year to 31 December 2018, Jacko Company Limited spent N144 million on the building and the fair value of the building is N147 million as at 31 December 2018.

The company also incurred the following expenditure on a qualifying project funded from the other borrowings for the year ended 31 December 2018.

Date Incurred	Amount (N’000)
31 March 2018	16,000
31 July 2018	19,200
31 October 2018	12,600

Required:
Calculate the amount to be capitalized in respect of the qualifying capital work-in-progress for the year ended 31 December 2018.

Answer

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Tags: Borrowing Costs, Capitalization, IAS 23, Interest expense, Loan Funding
Level: Level 2

Topic: Accounting for Government Grants
Series: MAY 2019

FR – May 2019 – L2 – Q6a – Accounting for Government Grants (IAS 20)

Discussion of the conditions for capitalizing borrowing costs under IAS 23 and guidelines on commencement, suspension, and cessation of capitalization.

Question

A company might incur significant interest cost if it has to raise a loan to finance the purchase or construction of an asset. IAS 23 on borrowing costs defines borrowing costs and sets out guidance on the circumstances under which such interest is to be capitalized as part of the cost of qualifying assets.

Required:
Discuss the conditions that must be met in order to capitalize borrowing costs under IAS 23, setting out when capitalization of the borrowing costs should commence, be suspended, or cease.

Answer

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Tags: Borrowing Costs, Capitalization, IAS 23, Interest Costs, Qualifying Assets
Level: Level 2

Topic: Accounting for Government Grants
Series: MAY 2019

FR – May 2019 – L2 – Q4a – Property, Plant, and Equipment (IAS 16)

Explanation of how initial costs of PPE should be measured and when subsequent expenditure should be capitalized under IAS 16.

Question

The objectives of IAS 16 are to prescribe the accounting treatment of property, plant, and equipment (PPE).

Required:
Explain how initial costs of property, plant, and equipment (PPE) should be measured and state the circumstances in which subsequent expenditure on non-current assets should be capitalized.

Answer

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Tags: Capitalization, IAS 16, Initial Measurement, PPE, Subsequent Expenditure
Level: Level 2

Topic: Property, Plant, and Equipment (IAS 16)
Series: MAY 2019

FA – Nov 2014 – L1 – SA – Q13 – Accounting for Property, Plant, and Equipment (IAS 16)

Calculating the amount to be capitalized as cost of property, plant, and equipment.

Question

Given the following information:

Cost of property, plant and equipment: N5,000,000
Administrative and general overhead: N750,000
Installation cost of property, plant & equipment: N500,000
Cost of entertainment: N150,000

What amount should be capitalized as cost of property, plant, and equipment?

A. N5,500,000
B. N6,250,000
C. N6,400,000
D. N6,700,000
E. N6,900,000

Answer

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Tags: and Equipment, Capitalization, Financial Reporting, IAS 16, Plant, Property
Level: Level 1

Topic: Accounting for Property, Plant, and Equipment (PPE) IAS 16
Series: NOV 2014

FA – May 2021 – L1 – SA – Q8 – Accounting for Property, Plant, and Equipment (IAS 16)

Calculate the initial cost of equipment including additional expenses.

Question

An entity purchased equipment for ₦20,000. The equipment was transported at ₦86, installation cost was ₦125, abnormal waste of materials was ₦15,000, and training cost of staff on the use of the machine was ₦255. How much should be recorded as the initial cost of the equipment?
A. ₦20,000
B. ₦20,086
C. ₦20,125
D. ₦20,211
E. ₦20,466

Answer

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Tags: Capitalization, Cost measurement, PPE
Level: Level 1

Topic: Accounting for Property, Plant, and Equipment (PPE) IAS 16
Series: MAY 2021

FR – March 2023 – L2 – Q5c – Preparation of Financial Statements

Determining the initial cost, depreciation charge, and carrying amount of the head office construction under IFRSs.

Question

Lana Ltd is a public listed company in Ghana, located in the Northern Region. The company operates in the manufacturing sector and prepares its accounts to 31 December each year. During the year ended 31 December 2021, Lana Ltd built a head office. The costs associated with the construction of the head office are as follows:

GH¢ million
Fees for environmental certifications and building permits	0.5
Leasehold Land acquisition	10.0
Architect and engineer fees	1.0
Construction material and labor costs (including unused materials)	6.5

At 31 October 2021, when the head office extension became available for use, the cost of unused materials on site amounted to GH¢0.5 million. The total borrowing costs incurred on a loan specifically used to finance the head office extension amounted to GH¢0.8 million. The estimated useful life of the building was 40 years.

Required:
With reference to IFRSs, determine:
i) The initial cost to be capitalized.
ii) The depreciation charge for the year ended 31 December 2021.
iii) The carrying amount as of 31 December 2021.

Answer

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Tags: Borrowing Costs, Capitalization, Construction, Depreciation, IFRS
Level: Level 2

Topic: Preparation of Financial Statements
Series: MAR 2023

FR – July 2023 – L2 – Q2b – Leases (IFRS 16)

Namba Ltd’s treatment of leasehold alteration and restoration costs according to IFRS 16 for the year ended 30 June 2022.

Question

Namba Ltd is a multinational with financial reporting year end 30 June. On 1 July 2021, Namba Ltd acquired a manufacturing unit under an eight-year lease. The lease rentals have been recorded correctly in the financial statements of Namba Ltd. However, Namba Ltd could not operate effectively from the unit until alterations to its structure costing GH¢13.2 million were completed. The manufacturing unit was ready for use on 30 June 2022. The alteration costs of GH¢13.2 million were charged to administration expenses. The lease requires Namba Ltd to restore the unit to its original condition at the end of the lease term. Namba Ltd estimates that this will cost a further GH¢10 million. Market interest rates are currently 6%.

The following discount factors may be relevant:

Periods	6% Discount Factor
7	0.665
8	0.627

Required:
Recommend to the directors of Namba Ltd how to account for the above transactions as at 30 June 2022 in accordance with International Financial Reporting Standards.
(Total: 5 marks)

Answer

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Tags: Alterations, Capitalization, IFRS 16, Leases, Provisions, Restoration Costs
Level: Level 2

Topic: IFRS 16: Leases
Series: JULY 2023

AT – Nov 2018 – L3 – Q3d – Mergers, amalgamation and reorganisation

Conditions under which research and development expenditure should be capitalized for tax purposes.

Question

Under what condition should Research and Development (R&D) Expenditure be capitalized?

Answer

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Tags: Capitalization, R&D Expenditure, Tax Allowances, Tax deductions
Level: Level 3

Topic: Mergers, amalgamation, and reorganization
Series: NOV 2018

CR – Nov 2021 – L3 – Q2c – IAS 38: Intangible Assets

Advise Zunka Ltd on how to account for the cost of adapting equipment and the provision for potential damages in a legal case for patent infringement.

Question

Zunka Ltd (Zunka) is a private pharmaceutical company in Ghana, which imports medical equipment manufactured under a patent. Zunka subsequently adapts the equipment to fit the market in Ghana and sells the equipment under its own brand name. Zunka originally spent GH¢6 million in developing the know-how required to adapt the equipment, and, in addition, it costs GH¢100,000 to adapt each piece of equipment. Zunka has capitalised the cost of the know-how and the cost of adapting each piece of equipment sold as patent rights.

Zunka is being sued for patent infringement by Sajida Ltd (Sajida), the owner of the original patent, on the grounds that Zunka has not materially changed the original product by its subsequent adaptation. If Sajida can prove infringement, the court is likely to order Zunka to pay damages and stop infringing its patent. Zunka’s lawyers are of the view that the court could conclude that Sajida’s patent claim is not valid.

Sajida has sued Zunka for GH¢10 million for using a specific patent and a further GH¢16 million for lost profit due to Zunka being a competitor in the market for this product. Zunka has offered GH¢14 million to settle both claims but has not received a response from Sajida.

As a result, the directors of Zunka estimate that the damages it faces will be between the amount offered by Zunka and the amount claimed by Sajida. The directors of Zunka would like advice as to whether they have correctly accounted for the costs of the adaptation of the equipment and whether they should make a provision for the potential damages in the above legal case in the financial statements for the year ended 31 March 2021.

Required:

Advise the directors of Zunka on how the above transaction should be accounted for in its financial statements for the year ended 31 March 2021 in accordance with relevant International Financial Reporting Standards (IFRS).

Answer

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Tags: Capitalization, Contingent Liabilities, IAS 37, IAS 38, Intangible Assets, Legal Cases, Patent Infringement, Provisions
Level: Level 3

Topic: IAS 38: Intangible assets
Series: NOV 2021

CR – May 2016 – L3 – Q1b – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)

Calculate borrowing costs to be capitalized for a warehouse construction project, considering specific loans and general borrowings.

Question

Nanniama Ltd is constructing a warehouse that will take about 18 months to complete. It began construction on 1st January 2014. The following payments were made during 2014:

GH¢’000 31st January 200 31st March 450 30th June 100 31st October 200 30th November 250

The first payment on 31st January was funded from the entity’s pool of debt. However, the entity succeeded in raising a medium-term loan for an amount of GH¢800,000 on 31st March, 2014, with simple interest of 9 percent per annum, calculated and payable monthly in arrears. These funds were specifically used for this construction. Excess funds were temporarily invested at 6 percent per annum monthly in arrears and payable in cash. The pool of debt was again used to an amount of GH¢200,000 for the payment on 30th November, which could not be funded from the medium-term loan. The construction project was temporarily halted for 3 weeks in May when substantial technical and administrative work was carried out.

Nanniama Ltd adopted the accounting policy of capitalizing borrowing costs. The following amounts of debt were outstanding at the balance sheet date, 31st December 2014:

GH¢’000 Medium-term loan (see description above) 800 Bank overdraft 1,200 (The weighted average amount outstanding during the year was GH¢750,000 and total interest charged by the bank amounted to GH¢33,800 for the year) A 10%, 7-year note dated 31st October 2018 with simple interest payable annually at 31st December 9,000

Required: Calculate the borrowing costs to be capitalized (10 marks)

Answer

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Tags: Borrowing Costs, Capitalization, Construction, IAS 23, Interest
Level: Level 3

Topic: Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)
Series: MAY 2016

FM – NOV 2018 – L2 – Q2 – Islamic Finance | Sources of finance: equity

Covers Islamic finance focusing on Riba, rights issue calculations and determining the cost of capital for projects.

Question

a) Islamic financing is an emerging model of financing in the global financial markets.

Required:

i) Explain the term Riba in Islamic Finance.
(2 marks)

ii) Explain the THREE (3) perspectives from which Riba can be viewed as forbidden or unacceptable in Islamic Finance.
(3 marks)

b) The Board of Directors of Continental Bank Ghana Ltd (CBGL) decided through a Board resolution to raise additional capital through rights issue to meet the new capital requirement by Bank of Ghana. CBGL plans to issue 1 new share for every 3 shares held by existing shareholders at 10% discount to its existing market price. CBGL currently has 6 million shares in issue at a book value of 2 cedis per share. CBGL maintains a dividend payout ratio of 50% and earnings per share currently is 1.6 cedis. Dividend growth is 5% per annum and this is expected into the foreseeable future. CBGL’s cost of equity is 15%. The issue cost is 600,000 cedis.

Required:

i) Calculate the market price per share.
(2 marks)

ii) Calculate the capitalization of CBGL.
(2 marks)

iii) Calculate the rights issue price.
(2 marks)

iv) Calculate the theoretical ex-right price.
(2 marks)

v) Calculate the market capitalization after the rights issue.
(2 marks)

c) KAF is a manufacturer of consumer electronics based in Accra, Ghana. KAF finances its investments with a combination of equity and debt. Its equity capital comprises 10 million shares which are currently trading on the stock exchange at GH¢2.55 per share. Its equity beta is 2.1 currently. The return on the risk-free security is 12.5% while the equity risk premium is 10%.

Included in KAF’s debt stock are irredeemable bonds that have a total face value of GH¢10 million while their total market value is GH¢12 million. The annual coupon of the irredeemable bonds is 18% but is paid semiannually.

The directors of the company are considering two new investment opportunities, which are described below:

Project 1: This is an expansion project in the consumer electronics manufacturing industry. It involves the setting up of a new factory in the northern part of Ghana. KAF would finance it with existing capital.
Project 2: This involves the installation of a new factory to manufacture furniture for export to foreign markets. Although this investment is a completely new line of business, KAF plans to finance it with existing capital. The average equity beta for the furniture manufacturing industry is 1.52 and the average industry capital structure is 60% equity and 40% debt.

It is expected that KAF’s tax rate will remain at 22%.

Required:

i) Compute the cost of capital that should be used as a discount rate for appraising Project 1.
(5 marks)

ii) Compute the cost of capital that should be used as a discount rate for appraising Project 2.
(5 marks)

Answer

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Tags: Capitalization, Cost of Capital, Islamic Finance, Riba, Rights Issue
Level: Level 2

Topic: Islamic Finance, Sources of finance: equity
Series: NOV 2018

Question Tag: Capitalization

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FR – Nov 2024 – L2 – Q2c – Intangible Assets and Their Measurement

Determining the correct accounting treatment for various intangible assets in Dolo LTD's financial statements, including licensing, software, and book rights.

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FR – Nov 2014 – L2 – Q5 – Property, Plant, and Equipment (IAS 16)

Discuss the conditions for capitalizing borrowing costs and calculate the total interest to be capitalized for VITAMAX Plc.

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PSAF – Nov 2015 – L2 – Q1 – International Public Sector Accounting Standards (IPSAS)

Evaluate financial treatment for leased machinery, borrowing costs, and investment properties in a public sector agency's financial statements.

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CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs

Required: Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

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FR – May 2019 – L2 – Q7b – Impairment of Assets (IAS 36)

Preparation of financial statements extracts for intangible assets and associated costs for Soft Solutions Limited.

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FR – May 2019 – L2 – Q7a – Property, Plant, and Equipment (IAS 16)

Discussion of the recognition criteria for internally developed intangible assets under IAS 38 and how to account for them.

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FR – May 2019 – L2 – Q6b – Accounting for Government Grants (IAS 20)

Calculation of the amount to be capitalized for qualifying capital work-in-progress under IAS 23.

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FR – May 2019 – L2 – Q6a – Accounting for Government Grants (IAS 20)

Discussion of the conditions for capitalizing borrowing costs under IAS 23 and guidelines on commencement, suspension, and cessation of capitalization.

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FR – May 2019 – L2 – Q4a – Property, Plant, and Equipment (IAS 16)

Explanation of how initial costs of PPE should be measured and when subsequent expenditure should be capitalized under IAS 16.

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FA – Nov 2014 – L1 – SA – Q13 – Accounting for Property, Plant, and Equipment (IAS 16)

Calculating the amount to be capitalized as cost of property, plant, and equipment.

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FA – May 2021 – L1 – SA – Q8 – Accounting for Property, Plant, and Equipment (IAS 16)

Calculate the initial cost of equipment including additional expenses.

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FR – March 2023 – L2 – Q5c – Preparation of Financial Statements

Determining the initial cost, depreciation charge, and carrying amount of the head office construction under IFRSs.

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FR – July 2023 – L2 – Q2b – Leases (IFRS 16)

Namba Ltd’s treatment of leasehold alteration and restoration costs according to IFRS 16 for the year ended 30 June 2022.

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AT – Nov 2018 – L3 – Q3d – Mergers, amalgamation and reorganisation

Conditions under which research and development expenditure should be capitalized for tax purposes.

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CR – Nov 2021 – L3 – Q2c – IAS 38: Intangible Assets

Advise Zunka Ltd on how to account for the cost of adapting equipment and the provision for potential damages in a legal case for patent infringement.

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CR – May 2016 – L3 – Q1b – Non-current assets: sundry standards (IAS 16, IAS 23, IAS 20 and IAS 40)

Calculate borrowing costs to be capitalized for a warehouse construction project, considering specific loans and general borrowings.

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FM – NOV 2018 – L2 – Q2 – Islamic Finance | Sources of finance: equity

Covers Islamic finance focusing on Riba, rights issue calculations and determining the cost of capital for projects.

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Required:
Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).