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IAS 23Case studies (Step 3 of 5)

Case study

Step 3 of 5
Practical caseIAS 23L1 · Fundamental

Five assets: qualifying or not, interest expensed or included

3 documents6 tasks≈ 45 min
0 / 8 items completed
Standards
IAS 23 — Borrowing Costs
Assistance levelFull guidance · strong assistance
  • Method: shown
  • Checklist: shown
  • Hints: shown
  • Step-by-step work: shown

Case brief

Situation

Chantiers Marenval SA (fictitious entity) closes its books on 31 December 20X5. It finances five assets in part by borrowing and must decide, for each of them, whether the borrowing costs are included in its cost or expensed.

Your assignment

Characterise each of the five assets (qualifying asset, exempt asset (para. 4) or not qualifying); compute the actual borrowing costs of the machine of asset 5 and the costs to be expensed; record them (case data) and present their effect; conclude.

Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.

Fundamental level: the method, help and references are shown.

Method

  1. Read the brief and the assignment.
  2. Open each document and spot the relevant data.
  3. Carry out the work in the suggested order.
  4. Submit, then read the conclusion and the model answer.

File checklist

  • Open each piece (0 / 3 consulted) · to do
  • Sort the information in the pieces · to do
  • Carry out the work (0 / 8) · to do
  • Submit the file, then assess yourself · to do

Documents

File documents

3 documents: open each one to read it.

Document 1Table

Register of financed assets

Register of financed assets at 31 December 20X5. Asset 1: chemical plant under construction for 20 months, placing in service expected in 6 months. Asset 2: cheeses being matured, the process requiring 30 months. Asset 3: metal cans manufactured in large series, on a repetitive basis, in a few days. Asset 4: bonds of a private issuer held as an investment. Asset 5: packaging machine bought ready for use and installed in three weeks, financed by a loan.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Principal borrowed for asset 5€400,000.00
Annual effective rate of the loan of asset 55%
Borrowing costs included in asset 5€0.00
Communication programme 20X6€2,500.00

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort3

  • Register of financed assets

  • Loan of asset 5

  • Communication programme

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      6 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.

      1. Task 1Analysis

        Characterise each of the five assets.

        Set out the facts, the question raised, then your analysis.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      2. Task 2Calculation

        Compute the actual borrowing costs of asset 5.

        Start from the data in the pieces, set the formula, check the unit and the order of magnitude.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the actual borrowing costs of asset 5.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      3. Task 3Calculation

        Compute the borrowing costs of asset 5 to be expensed.

        Start from the data in the pieces, set the formula, check the unit and the order of magnitude.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the borrowing costs of asset 5 to be expensed.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      4. Task 4Journal entries

        Record the borrowing costs of asset 5.

        Identify the accounts affected and the direction of each movement; check the balance.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      5. Task 5Effects on the financial statements

        What is their effect on the financial statements?

        For each financial statement, state the line affected, the direction and the amount.

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      6. Task 6Conclusion

        Write the conclusion.

        Write a conclusion that cites the facts and the treatment chosen.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      Workspace

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 8).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IAS 23 §4
      • IAS 23 §5
      • IAS 23 §7
      • IAS 23 §8