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hi sir Mike
On 1 April 2014, Cyclip commenced the construction of a new production facility, financing this by a bank loan.
Cyclip has followed the local GAAP in the country where it operates which prohibits the capitalisation of interest.
Bycomb has calculated that, in accordance with IAS 23 Borrowing Costs, interest of $100,000 (which accrued
evenly throughout the year) would have been capitalised at 31 March 2015. The production facility is still under
construction as at 31 March 2015.i understand that it increase profit and reduce financial cost. But i also thought it will be consider like an increase in net asset by 100 000 (revaluation).
thanksAgreed – if it has been expensed and, according to IAS / IFRS it should have been capitalised, then the adjustment necessary to bring it in line with IFRS would be to increase Retained Earnings and increase net assets
I don’t think that you have given me all necessary information
I’ve just checked the exam question from the June 2015 exam and the answer. From what I can see the finance cost adjustment and the affect on Retained Earnings HAS been dealt with correctly.
In addition, you are not asked for a statement of financial position so how can you make the assumption that the assets are incorrectly stated?
I’m really not sure what you problem is with this question – sorry!
I understand my problem is that is the INCa should have been capitalised, put in the goodwill calculation as assume it increase the net asset. nothing to do with sofp just goodwill Sir. i ok with the retaining earning but I also add all 100 000 to net asset.im really confused sir, 2 weeks to the exam.
No, you don’t add the full 100,000 to net assets! You’re trying to find “Fair value of net assets at date of acquisition” and, as at date of acquisition there was only three months’ worth of borrowing costs to be capitalised so the adjustment to arrive at fair value of subsidiary net assets at date of acquisition is simply to make the adjustment in the finance costs (with which you are happy) and to capitalise 25,000 borrowing costs relating to the pre-acquisition period
Ok now?
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