[mik2202]

@annz2020 said:
Dear Sir,

When a company gets a loan from a bank, say $50m to construct a Hotel Project and to be completed at end of 3rd year.
I understand the effective rate interest on this $50m need to be capitalised to the Cost of Development when the project commence, ease if the project inactive, am i right?
How about the expenses, such as bank charged Front End Fee, Commitment Fee, Coordination fee, solicitors fees to prepare the agreement, other charges to the company, are these expenses need to be capitalised and amortised over the project period? Same treatment as to bank loan interest?
Please advise.
Any reference books relating to FRS 23 or IAS 23 that i can read up?

Thank you.

As stated in BBP text book, “borrowing costs are interest and other costs incurred by an entity in connection with the borrowing of the funds”. (IAS 23) So I will understand that all the directly attributable costs to the borrowing of the funds will be capitalised.

[mik2202]

Thank you very much for your reply. I want to attach the image here but I cant so I will type everything here. Hope that you can help

Question:
Gains (Study text Question 7)
Required
Using the information below prepare for Gains Co for the year ended 31 December 20X9:
(a) the statement of recognised income and expense, and
(b) the statement of changes in equity.

(a) Gains Co income statement extract

Profit before interest and tax 792
Finance income 24
Finance cost (10)
Profit before tax 806
Income tax expense (240)
Profit for the period 566

(b) Non-current assets

(i) Assets held at cost were impaired by $25,000.

(ii) Freehold land and buildings were revalued to $500,000 (Book value $380,000).

(iii) A previously revalued asset was sold for $60,000.
Details of the revaluation are as follows:
Book value at revaluation 30,000
Revaluation 50,000
BV (after revaluation) 80,000
Depreciation (80,000/10) × 3) 24,000 = 56,000
Gains Co has been following paragraph 41 of IAS 16 which allows a reserve transfer of the realised revaluation surplus (the difference between depreciation based on revalued
amount and depreciation based on cost) as the asset is used to retained earnings.

(iv) Details of investment properties are as follows:
Original cost 120,000
Revaluation surplus 40,000
Value at 1.1.20X9 160,000
The properties had a valuation on 31 December 20X9 of $110,000. Gains Co previously
accounted for its investment properties by crediting gains to a revaluation surplus as
allowed by local GAAP. Gains Co now wishes to apply the fair value model of IAS 40
which states that gains and losses should be accounted for in the income statement. The
elimination of the previous revaluation surplus is to be treated as a change in accounting
policy in accordance with IAS 8. No adjustment has yet been made for the change in
accounting policy or subsequent fall in value.

(c) Share capital
During the year the company had the following changes to its capital structure.
(i) An issue of $200,000 $1 ordinary bonus shares capitalising its share premium reserve
(ii) An issue of 400,000 $1 ordinary shares (issue price $1.40 per share).

(d) Equity
The book value of equity at the start of the year was as follows:

Share capital 2,800,000
Share premium 1,150,000
Revaluation surplus 750,000
Retained earnings 2,120,000
Total 6,820,000
(e) Dividends
Dividends paid during the year amounted to $200,000.

Answer (given by BBP)

(a) Statement of recognised income and expense
20X9
$’000
Gain on revaluation of properties 120
Net income recognised directly in equity 120
Profit for the period (566 – (W) 50) 516
Total recognised income and expense for the period 636
Note: The effect of the change in accounting policy would be shown at the foot of the comparative
statement of recognised income and expense (not required by the question).
Working
Loss on investment property (160 – 110) (50)
(b) Statement of changes in equity
Share Share Revaluation Retained Total
Capital Premium Surplus earnings

Balance at 31 December 20X9:

Share capital: 2800 + 600 = 3400
Share premium: 1150 – 40 = 1110
Retained Earnings: 2120 + 40(from changes in acc policies) -200 (div) + 516 (profit for the year) + 35 (realisation of revaluation reserve) = 2511
Revaluation Reserve: 750 – 40(changes in acc policies) +120 -35 = 795

Working:

1 Calculation of profit realised on sale of revalued asset
Revaluation recognised in past 50,000
Less: amounts transferred to retained earnings:
(80,000/10 – 30,000/10) × 3 (15,000) = 35,000

@Mike: They do realise 35000 to retained earnings, so I dont complain about it,
I just didnt see they take into account the 4 for other income and dont deduct the 25 for impairment loss of the assets

And my teacher told me that “Asset held at cost when impaired is not creditted to P&L”, so I was so confused.

[Author]

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