On January 1, 2017, Octagon Limited, a newly formed company employed you as the accountant...
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Accounting
On January 1, 2017, Octagon Limited, a newly formed company employed you as the accountant for a project to be constructed. As the new Accountant, it is imperative that you are conversant with IAS 23 Accounting for Borrowing Costs as this will be a major project built from a loan secured from an international bank. On December 1, 2017, the company began construction of homes for professionals who desired housing in gated communities.
The construction is expected to take 3.5 years. It is being financed by the issuance of bonds for $7 million at 12% per annum. The bonds were issued at the beginning of the construction. The bonds carry a 1.5% issuance cost.
The project is also financed by issuance of share capital with a 14% cost of capital. The company has opted under IAS 23 to capitalize borrowing costs.
Required:
A. What are the TWO (2) prescribed alternative treatments for recognising borrowing costs?
B. Calculate the total borrowing costs which must be capitalized under IAS 23 at the end of the first year?
C. According to IAS 23, explain what are qualifying assets and list THREE (3) examples of qualifying assets
D. Provide details of the disclosure requirements for borrowing costs and the composition of borrowing costs?
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