Venus Ltd ('Venus') is a property developer in Hong Kong. Venus started its construction of a...

 

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Venus Ltd ('Venus') is a property developer in Hong Kong. Venus started its construction of a commercial building in Ho Man Tin, namely HMT Mall, which will be sold to independent third parties. On 1 July 2021, Venus started the construction at a fixed cost of HK$26 million. Construction commenced on that day and it would take 18 months to complete. The company adopts a financial year end on 31 December. Payments to the contractor made as follows: Payment date 1 July 2021 1 November 2021 1 June 2022 1 December 2022 Amount HKS'000 5,000 6,000 8,000 7,000 26,000 In order to finance the construction and its ordinary business, Venus arranged the following borrowings at 1 July 2021 as follows: i 7.2% HKS11 million 4-year loan note with simple interest payable annually, which relates solely to the construction of HMT Mall. The HKS11 million was put on deposit before payments were made to the contractor, during which time interest income of HKS20,000 was earned in 2021. The loan was still outstanding throughout 2021 and 2022. ii 8.5% HKS12 million 15-year loan note which is part of a pool of general borrowings, on which simple interest is payable annually, and the amount of capital remained unchanged in 2021 and 2022. iii 10% HKS15 million 4-year short-term bank borrowing which is part of a pool of general borrowings, on which simple interest is payable annually, and the amount of capital remained unchanged in 2021 and 2022. Venus finances its construction projects by specific borrowings first before using its general borrowings. Required: a With reference to HKAS 23 (revised) Borrowing Costs, discuss whether the interest incurred by Venus can be capitalised in relation to the construction of HMT Mall. (8 marks) b Calculate the total borrowing costs to be capitalised for the years ended 31 December 2021 and 31 December 2022, if available. (15 marks) e Determine the carrying amount of HMT Mall as at 31 December 2021 and 31 December 2022. (7 marks) Venus Ltd ('Venus') is a property developer in Hong Kong. Venus started its construction of a commercial building in Ho Man Tin, namely HMT Mall, which will be sold to independent third parties. On 1 July 2021, Venus started the construction at a fixed cost of HK$26 million. Construction commenced on that day and it would take 18 months to complete. The company adopts a financial year end on 31 December. Payments to the contractor made as follows: Payment date 1 July 2021 1 November 2021 1 June 2022 1 December 2022 Amount HKS'000 5,000 6,000 8,000 7,000 26,000 In order to finance the construction and its ordinary business, Venus arranged the following borrowings at 1 July 2021 as follows: i 7.2% HKS11 million 4-year loan note with simple interest payable annually, which relates solely to the construction of HMT Mall. The HKS11 million was put on deposit before payments were made to the contractor, during which time interest income of HKS20,000 was earned in 2021. The loan was still outstanding throughout 2021 and 2022. ii 8.5% HKS12 million 15-year loan note which is part of a pool of general borrowings, on which simple interest is payable annually, and the amount of capital remained unchanged in 2021 and 2022. iii 10% HKS15 million 4-year short-term bank borrowing which is part of a pool of general borrowings, on which simple interest is payable annually, and the amount of capital remained unchanged in 2021 and 2022. Venus finances its construction projects by specific borrowings first before using its general borrowings. Required: a With reference to HKAS 23 (revised) Borrowing Costs, discuss whether the interest incurred by Venus can be capitalised in relation to the construction of HMT Mall. (8 marks) b Calculate the total borrowing costs to be capitalised for the years ended 31 December 2021 and 31 December 2022, if available. (15 marks) e Determine the carrying amount of HMT Mall as at 31 December 2021 and 31 December 2022. (7 marks)

Answer rating: 100% (QA)

Answer a According to HKAS 23 revised Borrowing Costs interest can be capitalized as part of the cost of a qualifying asset if the following conditions are met 1 The borrowing costs are directly attri... View the full answer