Apex Co is a publicly listed supermarket chain. During the current year it started the building of a new store.

The
directors are aware that in accordance with IAS 23 Borrowing Costs certain borrowing costs have to be capitalised.
Details relating to construction of Apex Co's new store:
Apex Co issued a $10 million unsecured loan with a coupon (nominal) interest rate of 6% on 1 April 20X8. The loan
is redeemable at a premium which means the loan has an effective finance cost of 7.5% per annum. The loan was
specifically issued to finance the building of the new store which meets the definition of a qualifying asset in IAS
23.
Construction of the store commenced on 1 May 20X8 and it was completed and ready for use on 28 February 20X9,
but did not open for trading until 1 April 20X9.
Apex Co's new store meets the definition of a qualifying asset under IAS 23.
Select ONE which of the following is the correct description of a qualifying asset under IAS 23
1. Correct description of a qualifying asset?

A. An asset that is ready for use or sale when purchased

B. An asset that takes a substantial period of time to get ready for its intended use or sale
C. An asset that is intended for use rather than sale
D. An asset that has been financed using a specific loan

151 Apex Co issued the loan stock on 1 April 20X8. Three events or transactions must be taking place for
capitalisation of borrowing costs to commence in accordance with IAS 23. Which of the following is NOT one of
these?
A Expenditure on the asset is being incurred.
B Borrowing costs are being incurred.
C Physical construction of the asset is nearing completion.
D Necessary activities are in progress to prepare the asset for use or sale.

152 What is the total of the finance costs which can be capitalised in respect of Apex Co's new store?

153 Rather than take out a loan specifically for the new store Apex Co could have funded the store from existing
borrowings which are:
(i) 10% bank loan $50 million
(ii) 8% bank loan $30 million
In this case it would have applied a 'capitalisation rate' to the expenditure on the asset. What would that rate have
been?
A 10%
B 8.75%
C 9%
D 9.25%

154 If Apex Co had been able to temporarily invest the proceeds of the loan from 1 April to 1 May when
construction began, how would the proceeds be accounted for?
A Deducted from finance costs
B Deducted from the cost of the asset
C Recognised as investment income in the statement of profit or loss
D Deducted from administrative expenses in the statement of profit or loss

25 Carriageways Co had the following bank loans outstanding during the whole of 20X8 which form the
company's general borrowings for the year:
$m
9% loan repayable 20X9 15
11% loan repayable 20Y2 24
Carriageways Co began construction of a qualifying asset on 1 April 20X8 and withdrew funds of $6 million on that
date to fund construction. On 1 August 20X8 an additional $2 million was withdrawn for the same purpose.
Calculate the borrowing costs which can be capitalised in respect of this project for the year ended 31 December
20X8.
A $549,333
B $411,999
C $750,000
D $350,000
26 Leclerc Co has borrowed $2.4 million to finance the building of a factory. Construction is expected to take two
years. The loan was drawn down on 1 January 20X9 and work began on 1 March 20X9. $1 million of the loan was
not utilised until 1 July 20X9 so Leclerc was able to invest it until needed.
Leclerc Co is paying 8% on the loan and can invest surplus funds at 6%.
Calculate the borrowing costs to be capitalised for the year ended 31 December 20X9 in respect of this project.
A $140,000
B $192,000
C $100,000
D $162,000

29 Fido Feed Ltd has the following loans in place throughout the year ended 31 December 20X8 which
constitute its general borrowings for the period.
$m
10% bank loan 140
8% bank loan 200
On 1 July 20X8 $50 million was drawn down for construction of a qualifying asset which was completed
during 20X9.
What amount should be capitalised as borrowing costs at 31 December 20X8 in respect of this asset?
A $5.6 million
B $2.8 million
C $4.4 million
D $2.2 million

The following scenario relates to questions 231–235

Apex received a $10 million 6% loan on 1 April 20X7. The loan will be redeemable at a premium which
means the loan has an effective finance cost of 7.5% per annum. The loan was specifically issued to
finance the building of a new store.
Construction of the store commenced on 1 May 20X7 and it was completed and ready for use on 28
February 20X8, but did not open for trading until 1 April 20X8.

231 How should the loan be treated in the financial statements of Apex for the year ended 31 March
20X8?
A Present value
B Fair value through other comprehensive income
C Fair value through profit or loss
D Amortised cost

232 Which TWO of the statements below regarding IAS 23 Borrowing Costs are correct?
A Borrowing costs must be capitalised if they are directly attributable to qualifying assets
B Borrowing costs should cease to be capitalised once the related asset is substantially complete
C Borrowing costs must be capitalised if they are directly attributable to non-current assets
D Borrowing costs may be capitalised if they are directly attributable to qualifying assets
E Borrowing costs should commence to be capitalised once expenditure is being incurred on the
construction of the asset

233 How much should be recorded as finance costs in the statement of profit or loss for the year
ended 31 March 20X8?
$__________ ,000

234 How much interest should be capitalised as part of property, plant and equipment as at 31 March
20X8?
$__________ ,000

235 Apex decided that not all of the funds raised were needed immediately and temporarily invested
some of the funds in April 20X7, earning $40,000 interest.
How should the $40,000 be accounted for in the financial statements of Apex?
A Net off the amount capitalised in property, plant and equipment
B Taken to the statement of profit or loss as investment income
C Taken as other comprehensive income
D Deducted from the outstanding loan amount in the statement of financial position