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The Question Says,
Whitebirk meets the definition of a small entity in its jurisdiction and complies with the IFRS for SMEs Standard (the SMEs Standard). Whitebirk has entered into the following transactions during the year ended 31 May 20X6.
(i) Whitebirk requires a new machine, which will be included as part of its property, plant and equipment. Whitebirk therefore commenced construction of the machine on 1 February 20X6, and this continued until its completion which was after the year end of 31 May 20X6. The direct costs were $2 million in February 2016 and then $1 million in each subsequent month until the year end. Whitebirk has incurred finance costs on its general borrowings during the period, which could have been avoided if the machine had not been constructed. Whitebirk has calculated that the weighted average cost of
borrowings for the period 1 February – 31 May 20X6 on an annualised basis amounted to 9% per annum.*** I could not understand how they come up with Weighted Average Carrying amount of the machine of $3.5 m which is calculated in (2m+3m+4m+5m)/4 this way.
Please Help Sir.
Hey Ridwan, This question caught me out and came here for the answer but managed to work it out in the end.
Cost incurred to date at:
Feb 28th: Direct Costs $2m=$2m
Mar 31st: Direct Cost $2m + 1 subsequent month $1m=$3m
Apr 30th: Direct Cost $2m + 2 subsequent months $2m=$4m
May 31st: Direct Cost $2m + 3 subsequent months $3m=$5mTherefore the average cost during the period ($2m+$3m+$4m+$5m)/4 is $3.5m
Hopefully this helps
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