Financial accounting-ii (mgt401) Solution Assignment no.1 November semester fall 2013

[vuassignments]

View more random threads:

• FIN-611 Advanced Financial Accounting assignment No 01 3rd...
• asign _1.data,struct
• MTH302 Assignment 3 Solution July 2010
• CS101 - Introduction to Computing ASsignment instruction...
• CS 101 Introduction to Computing Assignment 4 Deadline 23...
• CS201_4rth_Assignment_Fall2011
• MTH303 Mathematical Methods Assignment No 1 Fall Semester...
• MGT713 -= Production / Operations Management Assignment No....
• need solution
• ENG201 Solution May 17, 2010

Financial accounting-ii (mgt401) Assignment no.1 November semester fall 2013

Due Date: December 02, 2013
Marks: 20

Learning Objective

The students are expected to learn the application of the provisions of IAS 23 (Borrowing Cost)
Learning Outcomes

After going through this activity, the students would be able to apply IAS 23 in its true meanings.
Case

Model Construction Limited (MCL) was established in 2005. During its emergence, it entered itself in construction industry as a residential constructor. In 2012, it changed its focus towards commercial building & development. Now company is well reputed in constructing different fast food restaurants, showrooms, shopping malls, manufacturing warehouses and different other types of buildings. MCL has also completed various challenging renovation projects with great excellence. Recently company has started a project to build a bridge that will take 3 years for completion. Total budget required for construction would be Rs. 30 million. Company decided to use multiple sources of borrowings to finance its project. It borrowed Rs. 32 million and used surplus funds of Rs. 2 million for its other administrative purposes. Funds were arranged in the following manner:
Borrowings from bank: Rs. 8 million @ 5% per annum
Usage from existing running borrowings:
Borrowing A - Rs. 4 million @ 6.50% per annum
Borrowing B - Rs. 6 million @ 6.75% per annum
Corporate bonds: Rs. 14 million @ 7% per annum

At first stage of the project, company has idle funds of Rs. 12 million which were invested by the company for a period of 5 months. Total return from this investment was Rs. 600,000.
Required:
Assume that company is adopting allowed alternative treatment under IAS 23 then:
(a) How it will treat the borrowing cost? (5 Marks)
(b) What will be total borrowing cost? (10 Marks)
(c) Calculate the amount of borrowing cost to be capitalized? (5 Marks)

[vuassignments]

IAS 23 (Borrowing Costs):
Goal
IAS 23 (Borrowing Costs) since the title indicates handles capitalization associated with credit price we. at the. curiosity. Overview associated with IAS twenty three (Borrowing Costs) is actually supplied right here to be able to allow college students as well as experts to understand nature associated with IAS twenty three (Borrowing Costs) inside a brief period of your time. It's also made certain right here this overview handles all of the factors associated with IAS twenty three (Borrowing Costs) inside a succinct method with no idea continued to be undisclosed. Primary goal associated with IAS twenty three (Borrowing Costs) would be to recommend the actual sales remedy with regard to credit price and it is disclosure needs. Credit Price consists of curiosity costs upon borrowings as well as trade distinction upon foreign exchange borrowings exactly where they're thought to be realignment in order to curiosity price.
Exclusion
IAS twenty three23 (Borrowing Costs) doesn't cope with the eye upon collateral. This means in the event that organization acquires a few mortgage as well as constructs the creating, credit price could be capitalized. However in the event that organization constructs this through it's upon supplies (equity) credit price can't ever end up being acknowledged.
IAS twenty three 23 (Borrowing Costs) handles just about all property which have a considerable time period to ready because of its meant make use of. These types of property tend to be known as being approved property within IAS 23 (Borrowing Costs). However it doesn't cope with subsequent 2 kinds of property;
Property calculated from reasonable worth IAS 41
Stocks IAS 2
Acknowledgement
Credit expenses which are straight associated with the actual purchase, manufacturing or even building associated with being approved property tend to be capitalized. Other credit expenses tend to be expensed away.
Dimension
Exactly where money tend to be lent particularly, the particular expenses sustained much less any kind of earnings gained about the short-term expense associated with this kind of borrowings tend to be capitalized.

[vuassignments]

Total borrowing costs:
The borrowings from the bank are:
8 million*(0.05/12)= Rs. 3333.33
Usage from existing running borrowings:
Borrowing A:
4 million*(0.065/12)=Rs. 21667
Borrowing B:
6 million*(0.0675/12)= Rs. 33750
Corporate bonds:
14 million*(0.07/12)= Rs. 81667
Total borrowing costs: 3333.33+21667+33750+81667= Rs. 140417.33

Sponsored Links