QUESTION 2 [January 2109, Question 3]

Cure Limited prepares its financial statements to 31 December each year. The company is involved in the pharmaceuticals industry and its operations are divided into two cash generating units, EU and Non EU. Two issues need to be resolved before the financial statements for the year ended 31 December 2018 can be finalised.

Issue 1:

The following information is available in relation to the two cash generating units.

EU Non EU

000 000

Goodwill - 4,800

Other intangible assets 6,000 1,200

Property 9,600 25,600

Plant and equipment 13,200 5,600

Carrying value at 31 December 2018 28,800 37,200

Fair value less costs of disposal at 31 December 2018 30,000 16,800

Future net cash inflows:

2019 4,800 4,800

2020 3,600 5,200

2021 10,800 6,400

2022 6,000 6,000

2023 6,400 3,600

2024 7,200 7,200

Discount rate appropriate for the activities of the cash generating units 10% 12%

Requirement

Calculate whether an impairment loss arises for either of the two cash generating units, EU and Non EUand Allocate any impairment loss arising in accordance with IAS 36 Impairment of Assets.

Issue 2:

On 1 January 2017, Cure Limited entered into a contract to have a new distribution depot built at a cost of 15,000,000. In order to finance the cost of the contract, Cure Limited borrowed 15,000,000 on 1 January 2017 at an interest rate of 6% per annum. The borrowings were drawn down in full on 1 January 2017.

While the depot was expected to be completed by 31 March 2018, it was delayed as a result of a strike by workers during the period 1 November 2017 to 28 February 2018. During the period of the strike, no building work was undertaken. Cure Limited invested available funds from 1 November 2017 to 28 February 2018, earning interest income of 24,000. The depot was completed on 31 May 2018 and the loan was repaid on 30 June 2018.

Requirement

Calculate and explain how this transaction should be accounted for by Cure Limited in accordance with extant international accounting standards.

Question 2 (Cure Limited)

Issue 2:

What is the total amount of borrowing costs that should be capitalised in the financial statements of Cure Limited for the years ended 31 December 2017 and 2018 in accordance with IAS 23 Borrowing Costs?

Group of answer choices

1,275,000

75,000

300,000

975,000