ACCA FR Chapter 5 Non-current assets (IAS23) Questions
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i am not being able to understand no 2. can you explain me please?
I cant understand questions 2
loan drawn down ~ commence construction = expense not capitalized
commence construction ~ end of year = capitalized 8% of 2.4M for 10 months.
but 1M was in investment until 1/11/2014, so deduct the 6% of income for 4 months from capitalization.
For Q2
Why is the £2.4M interest capitalised over 10 months? I did £1.4M for 10 months and £1M for 6 months minus 4 months of £1M income, when it was in use?
A tad late but… The 2.4M relates to the total amount borrowed. This will be the amount that we pay interest on. Of which 10/12 of this interest relates to the current reporting period. The 1M invested does not decrease the amount borrowed it is part of the 2.4M. However as it is not required right away the 1M is invested for 6/12 of the reporting period. This interest gained is netted off against the interest expense of the £2.4M giving the net interest expense to be capitalised.
Question 3:
8%*300mil=24mil
9%*450mil=40.5mil
64.5mil÷750mil=8.6%
8.6%of 60mil for 8/12months=3 440 000
8.6%of 20mil for 2/12months=286 667
Total of the 2 is 3,726,667.00
So when answering question 1 one must not round off the interest rate of 10.2307692 to 10.23 as it gives a totally different answer?
I got question 1 and 3 wrong. I followed the method of calculating weighed average as demonstrated by the tutor. For question 1 I got weighted average 9.77% and add 9.77%*9/12*6 M and 9.77%*5/12*2 M. For question 3 I got weighted average 11.6% and add 8/12*60M*11.6% and 2/12*20M*11.6%. Please help me out. Thx
Dear Sir,
in Q#5-NCA-MCQs of BPP Kit, the Interest income is calculated from when Loan was drawn down(from 1 May(6 month)). im now totally confused. shuold it be calculated from 1 May or 1 July/ could you plz clear it for me?
thanks
Please ask this sort of question in the FR Ask the Tutor Forum and not as a comment on a lecture.
Hi,
They were tricky. I only got Q3 correct. Can anyone give some guidance on the other 3?
Thanks
In Q2 it’s not very clear when the funds are invested to receive investment income. I think it is open to interpretation, as the money could be invested when the funds are drawn down, or once the construction work commences.
Hi,
The interest received on the invested funds can only be deducted when the interest expense is being capitalised, so we can only do this for the period from 30 June 2014 to 1 November 2014 (i.e. 4 months). In this instance it then doesn’t matter whether the money is invested immediately when drawn down or when construction commences, we can only net off the amounts from when construction commences.
Hope this clears it up.
Thanks
Yes it is clear sir, thank you so much.