Question 4

On 1 January 2018, USG entered into a contract with a property developer to have a manufacturing facility built at a cost of 15 million. To finance the cost of the contract, USG entered into a loan agreement with a bank to borrow an amount equal to the cost of the contract at an annual interest rate of 6% on 1 January 2018. The facility was expected to be completed by 31^st March 2019, but it was delayed due to strike by workers during the period 1 November 2018 to February 2019. USG invested available funds from 1 June 2018 to September 2018 and earned interest income amounting 24,000. The manufacturing facility was completed and put to use on 31^st May 2019 and the loan was repaid on 30^th June 2019. The expected useful life of the facility is 50 years.

Requirement

1. Calculate the amount that would be capitalised as a non-current asset. 4 marks
2. Prepare the financial statement extracts for 31^st December 2018 and 31^st December 2019. 8 marks

[Total marks 12]