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Quite interesting. However what happened to the two months in 2009 for the investment income? The question asked for the CV right before the sale.
Thank you so much for these lectures, it really made my ACCA self study more interesting and enjoyable.
I have a question in relation to borrowing cost, what happens if the borrowed finance is repaid before the project is complete, do we keep capitalising borrowed cost until the project is completed or capitalise until its repaid?
My name is Alicia.
I don’t understand one thing, calculating the temporary investment of surplus funds of 90 mlns (from 31. August till 1.11). This was calculated for two months, which I understand as then there was a strike. But why we didn’t add another 2 months when the work resumed from 1.1 until completion 2 months later. We did it for borrowed costs why not for invested? Didn’t we earn any invested income during this time?
Well I think that with this kind of problems it’s better trying to establish the logical sequence of events first.
So, by 1 Sep ’08 the entity has received the whole $300m loan from the bank and at the same time $90m out of this sum are temporarily invested ,in another bank I suppose, earning a 5% interest p.a.
For the whole of Sep and Oct (2 months) the borrowing costs eligible for capitalisation will be the actual borrowing costs incurred less the matching investing income, in accordance with IAS 23.
When the work resumed on 1 Jan ’09 the question states and I quote “the entity spent the rest of the loan in completing the project”, which means (remember it could not get any more money from the borrowing bank) it withdrew the $90m from the investing bank and spent them in construction; that’s is why we didn’t earn any investment income for the period 1Jan ’09 – 28 Feb ’09 : there was nothing to invest!
Yet, there is still a problem of how to treat the investment income earned in the period 1 Nov ’09 – 31 Dec ’09 i.e. the period of the workers’ strike. Should we keep on deducting this income from the the capitalised aggregate sum while at the same time there wouldn’t be any matching costs? According to IAS 23 during an extended period in which an entity suspends activities relating to the asset construction, the borrowing costs incurred should be treated as costs of holding PARTIALLY COMPLETED assets and thus would not qualify for capitalisation. I assume that this refers to the temporary investment as well but I an not certain and I would appreciate the tutor’s assistance on this.
Ok I get it. So we withdrew the investment on Jan 1. Cool.
Though not very difficult, it will not be out of place to introduce an example where capitalisation rate is used to work out the borrowing cost.
Is such a type of qs likely to come in the exam??
I have a queation:the 20m he spent immediately on 31august what do we do with that?
Peace be upon you.
I’m tryna watch these lectures but it keeps on popping up some error message “404 not found”.
Could you please help? My device is Asus Nexus 7″.
please check the forums for help
how come you got 90 for investment at 1.09.08?. Should it be 30-20=10?.
hi. sorry if im wrong.
it is because he borrow 80m and only spend 20m, so we assume another 60m (80m – 20m) he invest.
That is why on 1/9 the investment is 90m (30m + 60m)
hope you understand
ya thanks i got it.I haven’t read the words correctly………
Very good example and very clear and understandable explanations. Thank you Mike
he so didn’t seem like the teacher in rest of the f7 lectures before this .. other lectures are interactive and more visual, here even he sounded bored no offense!
Thank you Open Tuition for these FREE lectures!!
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