- 5 Marks
FR – Nov 2023 – L2 – Q2a – Financial Reporting Standards and Their Applications
Calculate the maximum amount of borrowing costs that could potentially be capitalised in accordance with IAS 23 for Banda Ltd.
Question
Banda Ltd (Banda) incurred the following borrowing costs during the financial year-end 31 December 2022:
GH¢
Overdraft interest
Foreign currency loan interest (correctly translated into GH¢)
Foreign currency exchange differences on equity
In addition, a three-year fixed rate GH¢2.4 million loan was borrowed on 1 January 2022 at 6.5%. A loan set-up fee (transaction costs) of GH¢24,000 was incurred. This increased the effective interest rate on the loan to 6.88%.
Required:
In accordance with IAS 23: Borrowing Costs, calculate the maximum amount that could potentially be capitalised as borrowing costs for the year-end 31 December 2022 (assuming an asset was being financed using all available finance).
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