Borrowing costs – net borrowing costs – ACCA Financial Reporting (FR)
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Good Day. Why did you multiple the investment by 3 months instead of 4? The strike should not have affected investments external to the entity.
Good day, i also had the same question and i stand to be corrected but i would want to think that the assumption is that the investments were not external thereby they weren’t immune from the halt of the company operations due to the strike.
Because the funds used to invest was taken from the funds borrowed to finance the construction.
Hence it is directly related, so we will take 3 months for investment,
Just like we did for construction.
HI sir
why did u use 3 months to calculate the investment and not 4 months?
Hi Chris, why did we took $100m for finance cost instead of $80m, as we are already calculating $20M for investment.
Thank you,
I believe IAS requires you calculate the entire borrowed cost (interest cost 1.5M) of the 100M less any investment interest income on the temporary investment of those borrowings (0.2M income from the 20M). Therefore, 1.3M was capitalised.
Can anyone explain to derive at the finance cost of 500,000 and the investment income of 70,000, Why 1/12 months were used? As per the Q it states the borrowing started from March’18.
Appreciate your help.
What will be the interest charged by bank for one month as per you ? You will get your answer.
Sir please how did u arrive at the finance cost of 500000 and the investment income of 70000.
Hi…sir why didn’t we include the month of june when capitalizing?
He did.. March 1 to June 31 is 4 months…
He did capitalize the borrowing cost incurred in June. He didn’t capitalize the month of May because the construction stopped due to strike action.
What happens if you use the un rounded figure?
Dear, could you please explain how did you arrive at $70000 for investment income.
per the below calculation it must be,
20M @ 4% x 1/12 = $66,667.
Many thanks in advance.
Round it off, you will get 70,000
How will rounding up 66,667 give you 70,000?
Rounding it off to the closest 1000$ will give us 70,000$ and that’s what Mike has done in the video.
So he has copied the numbers from the illustration example in the notes. the notes put the numbers in millions. so investment is 20m * 4% which is 0.8m for the year, and so one month is 0.067m or 0.07m. you are correct that if put into full numbers, the figure would be $66,667, but rounding to 1 dp gets you 0.07m = 70 (000) as he wrote