Question 3

On September 1, 2018, Kala Bhd began construction for homes for those families affected by flood. Construction is expected to take 2 years. Kala Bhd financed this project for RM10,000,000 whereby RM2,000,000 was for its operations. There was various sources of financing used. 8% redeemable preference shares amounting RM4,000,000, 10% loan stock at RM5,000,000 and 6% term loan totaling RM1,000,000.

Current market beta is 2.0 . Company expect to revise its debt to equity ratio in the near future to find the optimum leverage level.

Required:

1. Ascertain the borrowing costs that need to be capitalize under MFRS 123 with relevant journal entries. (14 marks)

2. Appraise the rules relating to commencement, suspension and cessation of capitalization of borrowing costs on qualifying assets in accordance with MFRS 123 Borrowing Costs. (12 marks)

3. Explain the disclosure needed according to MFRS 123. (4 marks)

4. Elaborate the meaning of borrowing costs and give examples of items that may be included under this category. (5 marks)