Lana WLL has borrowed BD2.4million to finance the building of a factory. Construction is expected to take two years. The loan was drawn on 1 January 2019 and work began on 1 March 2019. BD1 million of the loan was not utilised until 1 July 2020 so Lana was able to invest it until needed.

Lana WLL is paying 8% on the loan and can invest surplus funds at 6%.

Which is the borrowing cost to be capitalised for the year ended 31 December 2019 in respect of this project? (0.5 Mark)

a. BD192,000

b. BD162,000 c. BD140,000 d. BD100,000

2.2 Wael WLL purchased a machine on 1 July 2019 for BD250,000. The machine is being depreciated on a straight-line basis over its useful life of ten years. Residual value is estimated to be BD10,000. On 1 January 2020, following a change in legislation, Wael WLL fitted a safety guard to the machine. The safety guard cost BD12,500 and has a useful life of five years with a zero residual value.

Calculate the amount that will be charged to profit or loss for the year ended 31 March 2020 in respect of depreciation for this machine. (