Goodfood is a supermarket chain. During the current year it started building a new store. The directors are aware that in accordance with IAS23 Borrowing costs certain borrowing costs have to be capitalised.

Details relating to the construction of Goodfoods new store:

Goodfood took out a 10 million loan with an interest rate of 7.5% per annum on 1 April 2017. The loan was specifically taken to finance the building of the new store which meets the definition of a qualifying asset in IAS23. Construction of the store started on 1 May 2017 and it was completed and ready for use on 28 February 2018.

Questions:

Goodfoods new store meets the definition of a qualifying asset in IAS23. Which of the following describes a qualifying asset?

Group of answer choices

An asset that takes a substantial period of time to get ready for use or sale

A non-current asset that is classified as held-for-sale

An asset that is intended for use rather than sale

An asset that is ready for use or sale when purchased

Rather than take out a loan specifically for the new store Goodfood could have funded the store from existing borrowings which are:

• 10% bank loan of 50 million
• 8% bank loan of 30 million

In this case it would have applied a capitalisation rate to the expenditure on the asset. What would that rate have been?

Group of answer choices

9.25%

10%

9%

8.75%

What is the total of the finance costs which can be capitalized in respect of Goodfoods new store?

Group of answer choices

625,000

750,000

600,000

500,000

Goodfood issued a loan on 1 April 2017. Three events or transactions must be taking place for capitalisation of borrowing costs to commence. Which one is NOT one of these?

Group of answer choices

Physical construction of the asset is nearing completion

Necessary activities are in progress to prepare the asset for use or sale

Borrowing costs are being incurred

Expenditure on the asset is being incurred