Celine Ltd, a manufacturing company purchased a property for P1 million on 1 January 2019 for its investment potential. The land element of the cost is believed to be P400 000. The building is expected to have a useful life of 50 years. On 31 December 2020, local property indices suggested that the fair value of the property has risen to P1.1 million.

Celine Ltd expanded its business to a small rural town and has bought an old house that was converted to offices. The business operated by Celine Ltd in this town is still growing and the house is therefore not fully occupied by the company. The house has a small flatlet attached to it that is currently being rented out. This part of the house will eventually also be occupied by the business. The management is unsure how this property should be classified in relation to IAS40.

Required: Show how the property would be presented in the financial statements as at 31 December 2020 if:

1. The cost model was adopted
2. The Fair Value Model was adopted
3. List any four (4) examples of Investment property in accordance with IAS40 so that the Celine management can have a starting point on how they will classify the house

2. On 1 July 2020, entity A entered into a P2.2 million contract for the construction of a building. The building was completed at the end of June 2021. During the period, the following payments were made to the contractor:

Payment date Amount (P000)

1 July 2020 200

30 September 2020 600

31 March 2021 1,200

30 June 2021 200

Total 2,200

Entity As borrowings as at its year end of 30 June 2021 were as follows:

1. 10% four-year note with simple interest payable annually, which relates specifically to the project; debt outstanding at 30 June 2021 amounted to P700 000. Interest of P65 000 was incurred on these borrowings during the year, and interest income of P20 000 was earned on these funds while they were held in anticipation of payments.
2. 12.5% 10-year note with simple interest payable annually; debt outstanding at 1 July 2020 amounted to P1 000 000 and remained unchanged during the year.
3. 10% 10-year note with simple interest payable annually; debt outstanding at 1 July 2020 amounted to P1 500 000 and remained unchanged during the year.

Required

1. Assuming that interest expenses equal borrowing costs; calculate the borrowing costs to be capitalized
2. Outline the disclosure requirements of IAS23 in relation to borrowing costs