- 7 Marks
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.
Find Related Questions by Tags, levels, etc.
- Tags: Borrowing Costs, Capitalization, IAS 23, Interest expense, Loan Funding
- Level: Level 2
- Topic: Accounting for Government Grants
- Series: MAY 2019
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