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Question 4 (30 marks) Sunlight Property Development Limited (Sunlight) is a company which acquires and develops significant properties. The company holds a diversified property portfolio,

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Question 4 (30 marks) Sunlight Property Development Limited (Sunlight) is a company which acquires and develops significant properties. The company holds a diversified property portfolio, including hotels, office buildings, and leisure centres. Some of these properties are used by the company for providing services or for administrative purpose, while some of them are for rental purpose. One of the commercial buildings, namely Building A, will be redeveloped into a 50-storey office tower (the construction project). The construction is expected to take two years to complete. Construction activities commenced immediately on 1 July 2018. The following expenditure was incurred in year ended 30 June 2019: Payment date 1 July 2018 1 November 2018 1 February 2019 30 June 2019 Amount HK$ 000 20,000 26,000 18,000 16,000 80,000 On 1 July, 2018, Sunlight obtained the following borrowings from the bank: 5% HKS 40 million 4-year loan note with simple interest payable annually, which is used specifically to finance the construction project. The HKS 40 million was put on deposit before payments were made to the contractor, during which time interest income of HKS 500,000 was earned. 7.5% HKS 20 million 15-year loan note which is part of a pool of general borrowings, on which simple interest is payable annually, and the amount of capital remained unchanged during the year. 10% HKS 40 million 4-year loan note which is part of a pool of general borrowings, on which simple interest is payable annually, and the amount of capital remained unchanged during the year. The construction activities have been suspended in May 2019 for almost three weeks due to flooding which is unfortunately a common occurrence in the geographical area in which the construction is taking place. During the year, all borrowing costs incurred have been charged to profit or loss as finance charges. Required: a Calculate the total amount of borrowing costs incurred during the year ended 30 June 2019. What is the amount of borrowing costs eligible for capitalization as part of the construction project? Show all workings clearly. (14 marks) b Explain the accounting treatment for these borrowing costs with reference to HKAS 23. (10 marks) c Describe the journal entry that Sunlight needs to make to adjust the finance charge for the year. (3 marks) d What is the carrying value of the construction as at 30 June 2019

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