Section A.

MCQ

1. Gilbert took out a $7.5 million 10% loan on 1 January 20X6 to build a new warehouse during the
year Construction of the warehouse began on 1 February 20X6 and was completed on 30
November 20X6. As not all the funds were needed immediately, Gilbert invested $2 million in
4.5% bonds from 1 January to 1 May 20X6. What are the total borrowing costs to be capitalized
in respect of the warehouse? Show your calculations.

___________

2. An entity purchased a property 15 years ago at a cost of $100,000 and have been depreciating it at
a rate of 2% per annum, on the straight line basis. The entity have had the property professionally
revalued at $500,000. What is the revaluation surplus that will be recorded in the financial
statements in respect of this property?
A. $400,000
B. $500,000
C. $530,000
D. $430,000

3. Cowper plc has spent $20,000 researching new cleaning chemicals in the year ended 31 December
20X0. They have also spent $40,000 developing a new cleaning product which will not go into
commercial production until next year. The development project meets the criteria laid down in
IAS 38 Intangible Assets. How should these costs be treated in the financial statements of Cowper
plc for the year ended 31 December 20X0?
A. $60,000 should be capitalized as an intangible asset on the statement of financial position.
B. $40,000 should be capitalized as an intangible asset and should be amortized; $20,000 should
be written off to the statement of profit or loss.
C. $40,000 should be capitalized as an intangible asset and should not be amortized; $20,000
should be written off to the statement of profit or loss.
D. $60,000 should be written off to the statement of profit or loss

Section B - Scenario relates MCQ

The following scenario relates to questions 1–4

Flightline is an airline which treats its aircraft as complex non‐current assets, accounted for under the
historical cost model. The cost and other details of an aircraft are:
$000 Estimated life
Interior cabin fittings – installed 1 April 20X5 25,000 5 years
Engine – installed 1 April 20X5 9,000 36,000 flying hours

In the year ended 31 March 20X9, the aircraft flew for 1,200 hours for the six months to 30 September
20X8.

On 1 October 20X8 the aircraft suffered a ‘bird strike’ accident which damaged the engine beyond
repair. This was replaced by a new engine with a life of 36,000 hours at cost of $10.8 million.

Flightline’s year end is 31 March 20X9.

 1. What is the depreciation to be charged in respect of the engine for the 6 month period to 1 October
20X8?
$__________ ,000

2. Which of the following explains the correct accounting treatment of the engine?
A. Write off the damaged engine, capitalize the new engine and depreciate over 24,000 hours
B. Treat the $10.8 million as a repair to the damaged engine and continue to depreciate the engine
as in the first 6 months
C. Capitalize $6 million to replace the damaged engine, expense the other $4.8 million
D. Write off the damaged engine, capitalize the new engine and depreciate over 36,000 hours

3. A wing was also damaged, but was repaired at a cost of $3 million. The accident also caused
cosmetic damage to the exterior of the aircraft which required repainting at a cost of $2 million.

Identify the correct treatment for the $3 million repair costs to the wing and the $2 million repainting
of the aircraft
Capitalize Expense
$3 million repair of the wing
$2 million repainting of the exterior

4. As the aircraft was out of service for some weeks due to the accident, Flightline took the
opportunity to upgrade its cabin facilities at a cost of $4.5 million. This did not increase the
estimated remaining life of the cabin fittings, but the improved facilities enabled Flightline to
substantially increase the air fares on this aircraft.

What is the carrying amount of the cabin fittings as at 31 March 20X9?

A. $8,600,000
B. $8,000,000
C. $5,000,000
D. $7,250,000