Construction of ABC's new nursing home began on 1 January 2019 and was completed on 30 September 2019. Following a grand opening, the nursing home was brought into use on 1 November 2019. On the 1 January 2019 ABC received a loan of 430,000 to finance the construction of the new nursing home. The loan carries an 8% annual rate of interest.

The following costs were incurred in respect of the nursing home:

Initial Survey of site 48,000, Site preparation 96,000, Annual maintenance once operational 36000, Materials purchased for construction 300,000, Trade discount received on materials purchased (39,600), Legal Fees associated with the construction 4,800, Import duty on building framework 33,600, Project managers salary 168,000, Annual wages of employees once operational 120,000, Costs relating to formal opening 20,000, Administration costs 40,000, Annual interest incurred on loan 34,400. Total 861,200

Separately, a government grant of 31,850 was received on the 1 March 2019 for the purchase of medical equipment. The grant equaled 65% of equipment cost. The equipment is expected to have a useful life of five years and it has been decided to charge a full year of depreciation in the year of acquisition and none in the year of disposal. It has also been agreed to treat grants relating to non-current assets as deferred income.

As the new financial accountant, you have been tasked with the recording of the above items in the financial statements of ABC for the year ended 31 December 2019. You are aware that your year-end bonus will be linked to the profit recorded in the Profit or Loss Account.

Requirement:

a) Outline, in accordance with IAS16 Property ,plant & equipment ,the criteria that must be met before ABC can capitalise any of the expenditure in respect of the new nursing home;

b) Calculate, in accordance with IAS16, and any other relevant IAS, the amount that should be capitalized in respect of the new nursing home , giving reasons for your inclusion;

c) Outline any potential ethical issue that may arise when capitalizing expenditure in respect of the new nursing home;

d) Prepare in accordance with IAS20 Accounting for Government Grants, the journal entries relevant to the medical equipment and related grant for posting to ABC's financial statements for the year ended 31 December 2019.

e) ABC will prepare its financial statements on a Historical Cost Basis. Briefly explain in your own words this measurement basis and explain ONE other measurement base that, in certain circumstances, could be used when preparing financial statements