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Hi Dear Tutor, in this case what how do I have to approach to investment income with capitalised interest on borrowing cost?
CYClip(SCO)
profit for the year(31 March 2015)-2400
Finance cost (300)Bycomb(PCO)
Finance cost(400)
say for example there is investment income under Pco(Bycomb)-1000Note
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(Parent CO) has calculated that, in accordance with IAS 23 borrowing costs, interest of $100,000 (which accrued evenly throught the year) would have been capitalised at 31 march 2015.The production facility is still under construction as at 31 MArch 2015.
In the aswer note:Consolodated profit-2937
When we find profit attributable to
Owner of parent 2734
NCI-203(last time i forgot to deduct the below:))
Profit for the year of Cyclip-2400+100(capitalised interest cost)=2500*9/12*20=375
depreciation(360*20)=(72)
impairment(500*20)=(100)
Say for example if there was investment in Bycomb
INvestment income (1000-do we have to deduct 100(capitalised interest on borrowing cost) or + do we have to add it over )?
I cannot understand why you don’t understand this!
From which source has Cyclops borrowed the money?
(Say) Barclays Bank
Now, what on Earth has this got to do with Bycomb?
The issue here is NOT one that concerns intra-group activities
It’s all a question of re-allocating the finance cost that had, incorrectly, been included within administrative expenses whereas it should have been capitalised
So we need to reduce Administrative Expenses (credit 100) and increase Asset Under Construction with the (properly) capitalised borrowing costs (debit 100)
Investment Income in Bycomb has NOTHING AT ALL to do with this re-allocation of borrowing costs in the subsidiary
NOTHING
OK?
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