2 130 MARKSI a) b) "The deduction from assets method of accounting for government grant is used by Clarendon Mines Limited to record a government grant. The directors want to switch to the deferred income method because they assume the amount of income shown on the Statement of Comprehensive Income will increase and thus improved the overall performance of the company. As an accounting major at university explain the accuracy of the directors assumption. (4 marks) Falmouth Cruise Limited bought a cruise boat valued at $10,200,000 to operate on the south coast of Jamaica. The government has decided to assist the company by giving the company a cash grant to offset of 50% of the value of the cruise boat. The boat qualifies as a depreciating asset according to IAS 20, Government Grants and is depreciated over a period of 8 years. Its residual value is expected to be nil. Required: a) Prepare extracts of Essential Limited's Income statement and statement of financial position to account for the first three (3) years for the above items using the deferred income method (12 marks) b) According to IAS 23, Borrowing Costs, certain borrowing costs have to be capitalized. Explain with reference to the above IAS how interest should be capitalized (4 marks) c) WestPoint Construction Limited acquired a loan for $60 million on 1 January 2020 to begin the construction of a bridge. The loan was acquired from Nelson Bank at a nominal interest rate of 10% and an effective interest rate of 12%. Construction did not begin on the bridge until, 1 February 2020 and was completed and ready for use on 31 December 2020. The company invested $20 million of the funds received from the bank over the period 1 January to 30 June 2020 at an interest rate of 8%. During the months of July and September 2020 construction on the project was suspended. REQUIRED: For the year ended 31 December 2020 show the following: 1. The Statement of Comprehensive Income Extract for the year (4 marks) 2. The Borrowing cost to be capitalized on the Statement of Financial Position (6 marks)