Page 409 - SBR Integrated Workbook STUDENT S18-J19

Answers

Example 3

Borrowing costs

Borrowing costs directly attributable to a qualifying asset must be capitalised.
Although work commenced on 1 February 20X1, the capitalisation of
borrowing costs cannot commence until 1 March 20X1 as this is when the
borrowings were obtained. Capitalisation of borrowing costs ceases when the
asset is substantially ready on 30 November 20X1. The amount that can be
capitalised should be reduced by any investment income earned:

$m
Finance costs ($8m × 7% × 9/12) 0.42
Investment income (0.10)
––––
Borrowing costs to capitalise 0.32
––––
The amount capitalised as property, plant and equipment will therefore be
$10.32 million ($2m land + $8m construction + $0.32m borrowing costs).

Depreciation of the building component should commence on 30 November
20X1 as this is when the asset was ready for use.

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