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QUESTION 3 Nana Limited began the construction of its factory on 1 May, 2020. The following costs were incurred on the construction: GH Purchase price

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QUESTION 3 Nana Limited began the construction of its factory on 1" May, 2020. The following costs were incurred on the construction: GH Purchase price of land 5,500,000 Architect fees 310,000 Site preparation 1,350,000 General overheads 340,000 Cost of building materials used 7,800,000 Operating losses before commercial production 500,000 Cost of introducing new products 11,200,000 Cost of opening new facility 40,000 Legal fees 2,400,000 Nana secured a loan of GH35,000 on 19 January, 2020 to finance the construction of the new factory. This meets the definition of a qualifying asset as per IAS 23. The loan carried an interest rate of 6% per annum. The factory was completed on 31" December, 2020 and brought into use following its grand opening on the 1" February, 2021. Required: i. Calculate the amount to be capitalized as borrowing cost. (1 mark) ii. Calculate the cost of the factory that will be included in tangible non-current assets at 31" December, 2020. (3 marks) iii. Show the amount to be included in the statement of profit or loss as a finance cost. (1 mark) iv. From the above information, identify the items which will not constitute the cost of factory according to IAS 16. (2 marks) Outline any three (3) criteria for capitalising borrowing cost. (3 marks) (10 marks) V. 2

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