A business purchased two brick-making machines on 1 January 2010 at a cost of K150,000 each....

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A business purchased two brick-making machines on 1 January 2010 at a cost of K150,000 each. Each had an estimated life of five years and a nil residual value. The straight line method of depreciation is used. Owing to an unforeseen slump in market demand for bricks, the business decided to reduce its output of bricks, and switch to making other products instead. On 31 March 2012, one brick-making machine was sold (on credit) to a buyer for K80,000. Later in the year, however, it was decided to abandon production of bricks altogether, and the second machine was sold on 1 December 2012 for K25,000 cash. (a) Prepare the machinery account, provision for depreciation of machinery account and disposal of machinery account for the accounting year to 31 December 2012. (b) What are the three events or transactions that must be taking place for capitalisation of borrowing costs to be started? (3 marks) (c) When should suspension of capitalisation of borrowing costs occur and when is it not necessary? (2 marks) (d) When should cessation of capitalisation of borrowing costs occur? Give one example. (3 marks) (e) What are the disclosure requirements in relation to borrowing costs? (2 marks) A business purchased two brick-making machines on 1 January 2010 at a cost of K150,000 each. Each had an estimated life of five years and a nil residual value. The straight line method of depreciation is used. Owing to an unforeseen slump in market demand for bricks, the business decided to reduce its output of bricks, and switch to making other products instead. On 31 March 2012, one brick-making machine was sold (on credit) to a buyer for K80,000. Later in the year, however, it was decided to abandon production of bricks altogether, and the second machine was sold on 1 December 2012 for K25,000 cash. (a) Prepare the machinery account, provision for depreciation of machinery account and disposal of machinery account for the accounting year to 31 December 2012. (b) What are the three events or transactions that must be taking place for capitalisation of borrowing costs to be started? (3 marks) (c) When should suspension of capitalisation of borrowing costs occur and when is it not necessary? (2 marks) (d) When should cessation of capitalisation of borrowing costs occur? Give one example. (3 marks) (e) What are the disclosure requirements in relation to borrowing costs? (2 marks)

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