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  1. Hi,

    Taking into consideration that Edigijus on 1/01/2009 completed the project from the invested funds i.e. from the 90 why has the borrowing cost of Jan to Feb been calculated ?

    Thanks

  2. Can u please clarify,the loan we are taking about, is it Long Term or Short term,
    For instance,if we take a loan to acquire an asset, and the loan taken is short term, thus the finance cost incured, is it capitalised or taken as revenue expenditure.? needs

  4. Hello
    Please help..

    Trial Balance :
    Interest paid (DR) – $5000
    10% loan – $80000

    Add.Information:
    The loan is repayable in five years.

    -“-“-”
    Is it
    $8000 to income statement as Finance Cost
    And
    $80000 to B/sheet as NCL??
    Thanks ?

    • There appears to be a missing accrual of $3,000 interest. This depends upon the date of issue of the loan but if it’s a 10% loan of $80,000 then a full year’s charge should be $8,000 (expense in statement of profit or loss), $3,000 accrual for interest not yet paid (current liability on statement of financial position) and $80,000 long term liability (statement of financial position)

      Of course, if the $3,000 unpaid interest is the difference between face value interest rate and effective interest rate, then that $3,000 will be added to the $80,000 and $83,000 will be shown as the long term liability.

      It all depends on the terms of the loan and you haven’t given me enough detail for me to be specific

  8. Dear Mike little,
    Am having problem viewing the lectures, where I click to hear the lecture appears an advert clip and when I click it , it open the advert page. I even tried paper f 8 it is the same. Thanks .

    • Hi – of the original 100 borrowed, there is still 20 invested as at the date the next 120 is borrowed. Of that 120, 70 is invested (so 50 is spent). When the 70 is invested, it’s added to the 20 invested brought forward and that’s where the 90 invested comes from!

      OK?

      • Applying the above logic, the balance in April is 90m. In end May, he spent 60m. That would leave us with a balance amount of 30m. On 31st August, he spends 20m. So should the calculation not be 30+20=50. How did we come to 90?

        Do the words “withdrew” and “spend” imply the same in this question?

      • On 31 August, he borrows 80 of which 20 is spent immediately. That leaves 60 to invest on top of the existing investment of 30 and that gives us the 90

        OK?

  10. Dear admin,

    I must say that you guys are doing an amazing job with all the material and the on lectures. However, I am facing difficulties accessing the lectures using my mobile/tablet (samsung Galaxy S4/ Note 2) and wanted to know if you are aware of fix?

    I’ve tried using chrome, but still I’m not able to view the lectures (even when signed in).

  12. Dear Mike,

    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?

    Thank you

  13. Hi,
    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.

  16. 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″.

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