APC311 Assessments

By December 5, 2018Academic Papers

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Question 1

Lenny  Ltd. started the construction of an asset on 1 January 2017 with a loan of £40,000 borrowed at an interest rate of 9% per annum.

The loan was used on the asset as follows

 

£

1 January, 2017

15,000

2 May, 2017

20,000

3 October, 2017

5,000

 

 

 

The construction of the asset was completed on 31 December 2017. However, during the accounting period Lenny Ltd. has invested the surplus funds at an interest rate of 3% on temporary basis before these were required for spending.

Required:

(a) The Borrowing Cost eligible for capitalization at 31.12.2017.

(b) The Cost of Asset to be reported in the statement of financial position at 31.12.2017

 

Question 2:

KLM had the following loans in place at the beginning and end of 20X1:

The bank loan at 6% p.a. was taken in July 20X1 to finance the construction of a new production hall (construction began on 1 March 20X1).

The bank loan at 8% p.a. and debenture stock were taken for no specific purpose and KLM used them to finance general spending and the construction of a new machinery.

KLM used £60 000 for the construction of the machinery on 1 February 20X1 and £25 000 on 1 September 20X1.

What borrowing cost should be capitalized for the new machinery?

 

 

Originally posted 2018-04-25 16:56:37.

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