Alpha Inc. manufactures equipment for companies in the forestry and related sectors. During its year ended...

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Alpha Inc. manufactures equipment for companies in the forestry and related sectors. During its year ended March 31, 2009 Alpha is engaged in the manufacture of the following, all of which require an extended period of time to complete: (i) log-handling equipment produced routinely on a repetitive basis for inventory (ii) a specialized machine custom-ordered and designed by a major customer that made a $50 advance payment on its production (iii) a new production facility for Alpha's own use Except for a $100 loan arranged as interim financing on the new production facility, no specific debt was incurred to finance these activities. Instructions Prepare a memo for Alpha Inc.'s controller that responds to the following questions: (a) Do the borrowing costs on all three assets have to be capitalized under IAS 23? (b) Are borrowing costs and interest payments the same thing? (c) Does the $50 advance payment on the custom-ordered machine affect the calculation of borrowing costs to be capitalized? If it does, how? (d) Explain briefly how the capitalization rate should be calculated. Alpha Inc. manufactures equipment for companies in the forestry and related sectors. During its year ended March 31, 2009 Alpha is engaged in the manufacture of the following, all of which require an extended period of time to complete: (i) log-handling equipment produced routinely on a repetitive basis for inventory (ii) a specialized machine custom-ordered and designed by a major customer that made a $50 advance payment on its production (iii) a new production facility for Alpha's own use Except for a $100 loan arranged as interim financing on the new production facility, no specific debt was incurred to finance these activities. Instructions Prepare a memo for Alpha Inc.'s controller that responds to the following questions: (a) Do the borrowing costs on all three assets have to be capitalized under IAS 23? (b) Are borrowing costs and interest payments the same thing? (c) Does the $50 advance payment on the custom-ordered machine affect the calculation of borrowing costs to be capitalized? If it does, how? (d) Explain briefly how the capitalization rate should be calculated.

Answer rating: 100% (QA)

Memo To Alpha Inc Controller From Your Name Date Date Subject Capitalization of Borrowing Costs under IAS 23 In response to your questions regarding the capitalization of borrowing costs under IAS 23 ... View the full answer