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.

Answer rating: 100% (QA)

i Under IAS 23 borrowing costs that are directly attributable to the acquisition construction or production of a qualifying asset should be capitalized as part of the cost of that asset Borrowing costs that qualify for capitalization are those that are incurred during the period of time that is required to complete and prepare the asset for its intended use or sale Borrowing costs should be suspended during periods in which active development of the qualifying asset is interrupted and should resume when development resumes In this case the construction of the office building was suspended for two months during July and August 2022 so borrowing costs should be suspended for those two months ii The total borrowing cost ... View the full answer