ACCA FR · Guided practice (Show me how)
Chapter 5: Non-current assets
Borrowing costs: specific loans, investment income and general borrowings
Specific borrowings. Columbia commenced the construction of an item of property, plant and equipment on 1 March 2015 and funded it with a $10 million loan. The rate of interest on the borrowings was 5%. Due to a strike no construction took place between 1 October and 1 November. Columbia's reporting date is 31 December 2015.
Net borrowing costs. Ecuador has a loan facility of $300 million upon which interest is charged at 6%. It is also allowed to invest funds and earn a return of 4%. On 1 March 2018, $100 million was borrowed to construct a new indoor velodrome, of which $20 million was invested immediately for use later on the project. On 1 May 2018 work on the construction stopped due to strike action, but work restarted on 1 June 2018 and continued up to the 30 June 2018 reporting date.
General borrowings. Venezuela had the following bank loans in issue during 2015: a 4% bank loan of $25 million and a 3% bank loan of $40 million. Venezuela commenced the construction of an item of property, plant and equipment on 1 January 2015 for which it used its existing borrowings. $10 million of expenditure was used on 1 January and $15 million was used on 1 July.
Calculate the borrowing costs to be capitalised in each case. Work in $000 ($1 million = 1,000).
Example 5: specific borrowings
Calculate Columbia's capitalisation period and borrowing costs eligible for capitalisation for the year ended 31 December 2015.
Illustration: net borrowing costs
Calculate Ecuador's borrowing costs on the amount borrowed for the qualifying months, before investment income, and its net borrowing costs eligible for capitalisation for the year ended 30 June 2018.
Example 6: general borrowings
Calculate Venezuela's capitalisation rate and borrowing costs eligible for capitalisation for 2015.
Opening this exercise…