On January 1, 2017, Octagon Limited, a newly formed company employed you as the accountant

for a project to be constructed. As the new Accountant, it is imperative that you are conversant

with IAS 23 Accounting for Borrowing Costs as this will be a major project built from a loan

secured from an international bank.

On December 1, 2017, the company began construction of homes for professionals who desired

housing in gated communities. The construction is expected to take 3.5 years. It is being financed

by the issuance of bonds for $7 million at 12% per annum. The bonds were issued at the

beginning of the construction. The bonds carry a 1.5% issuance cost. The project is also financed

by issuance of share capital with a 14% cost of capital. The company has opted under IAS 23 to

capitalize borrowing costs.

Required:

A. What are the TWO (2) prescribed alternative treatments for recognising borrowing costs?

B. Calculate the total borrowing costs which must be capitalized under IAS 23 at the end of

the first year?

C. According to IAS 23, explain what are qualifying assets and list THREE (3) examples of

qualifying assets

D. Provide details of the disclosure requirements for borrowing costs and the composition of

borrowing costs?