Question
Martin construction Limited incurs significant finance costs on its financing for the construction of supermarkets. Its chosen accounting policy to date has been to expense
Martin construction Limited incurs significant finance costs on its financing for the construction of supermarkets. Its chosen accounting policy to date has been to expense the finance costs as incurred. The final accounts for the year ended 31 December 2015 and the 2016 draft accounts reflect this policy and show the following:
following: | 2016 N$ 000 | 2015 N$ 000 |
Profit before interest and tax | 8700 | 6 200 |
Finance cost | (2500) | (1750) |
Profit before tax | 6 2 00 | 4 450 |
Income tax expense | (1 900) | (1400) |
Profit before tax | 4 300 | 3 050 |
Retained earnings b/f | 26 050 | 23 000 |
The directors of Martin construction Limited have now decided to change the accounting policy in 2016 to capitalisation of finance costs as per IAS 23. Martin construction limited incurs no finance costs other than those related to the construction of the supermarkets. Martin construction limited paid a dividend of N$ 1 million during the year ended 31 December 2016 Required: Show how the change in accounting policy will be reflected in the statement of profit or loss and other comprehensive income, and the statement of changes in equity for the year ended 31 December 2016 (15 marks
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