Answered step by step
Verified Expert Solution
Question
1 Approved Answer
QUESTION SIX Apex is a publicly listed supermarket chain. During the current year it started the construction of a new store. The directors are aware
QUESTION SIX Apex is a publicly listed supermarket chain. During the current year it started the construction of a new store. The directors are aware that in accordance with IAS 23 Borrowing costs, certain borrowing costs have to be capitalised. Details relating to construction of Apex's new store are as follows: Apex issued a K10 million unsecured loan with a coupon (nominal) interest rate of 6% on 1 January 2019. The loan is redeemable at a premium which means the loan has an effective finance cost of 7.5% per annum. The loan was specifically issued to finance the building of the new store which meets the definition of a qualifying asset in IAS 23. Construction of the store commenced on 1 February 2019 and it was completed and ready for use on 30 November 2019, but did not open for trading until 1 January 2020. During the year trading at Apex's other stores was below expectations so Apex suspended the construction of the new store for a two-month period during April and May 2019. The proceeds of the loan were temporarily invested for the month of January 2019 and earned interest of K40,000. Required: (a) Explain the circumstances when, and the amount at which, borrowing costs should be capitalised in accordance with IAS 23. [5 Marks] (b) Calculate and the explain net borrowing cost that should be capitalised as part of the cost of the new store and the finance cost that should be reported in the statement of profit or loss for the year ended 31 December 2019. [10 Marks]
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started