FINANCIAL REPORTING ANALYSIS

Question 2

A. Tipper Ltd. raised a $15 million loan having an interest rate of 13% on 1 January 2022. The loan was specifically raised for the construction of an office building which meets the definition of qualifying asset under IAS 23. The construction of the office building started on 1 February 2022 and was completed on 30 November 2022. However, the construction was suspended for two months because of a shortage of material during July and August 2022. The loan was temporarily invested for the month of January 2022 and earned interest of $80,000.

Required:

i. Explain when borrowing cost should be commenced and suspended under IAS 23. (4 marks)

ii. Compute the total borrowing cost for the year.

iii. Compute the borrowing cost to be capitalised and charged to profit & loss account. iv. Compute the cost of the office building in the statement of financial position on December 31, 2022.

B. You are also helping to make your organization's year-end financial statement and have been asked to carry out an impairment review of non-current assets held. You obtained the following details of an equipment held by the firm: An equipment with a cost price of $1,000,000 was bought 2 years ago. It has a useful life of 10 years and 0 residual value. It is now being revalued after two years to fair value of $500,000 if sold on the second-hand market and there is no cost to sell. The value in use is $600,000. Required: Using clear workings, compute the impairment, if any, on the equipment.