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IAS 23Case studies (Step 3 of 5)

Case study

Step 3 of 5
Practical caseIAS 23L3 · Advanced

General borrowings: weighted expenditure, capitalisation rate and cap

3 documents10 tasks≈ 80 min
0 / 13 items completed
Standards
IAS 23 — Borrowing Costs
Assistance levelNo help · reduced assistance
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: shown

Case brief

Situation

Logistique Pennoir SA (fictitious entity) builds in 20X5 a logistics platform, a qualifying asset, financed by the general borrowings of the entity. Three loans are outstanding: A (3,000,000 EUR at 8%), B (5,000,000 EUR at 6%) and C (2,000,000 EUR at 9%, drawn on 1 July). Year end 31 December 20X5.

Your assignment

Identify the missing information; compute the weighted average expenditure, the capitalisation rate, the eligible costs and the amount included after the cap (weighted averages supplied by the case); record the expense of the year then the inclusion; state the disclosures; present the 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.

Advanced level: no help, the work is grouped by kind.

Documents

File documents

3 documents: open each one to read it.

Document 1Table

Table of the general borrowings

Table of the general borrowings of 20X5. A: 3,000,000 EUR at 8%, whole year, costs of 240,000 EUR; weighted outstanding 3,000,000. B: 5,000,000 EUR at 6%, whole year, costs of 300,000 EUR; weighted outstanding 5,000,000. C: 2,000,000 EUR at 9%, drawn on 1 July, costs of 90,000 EUR; weighted outstanding 1,000,000. Total borrowing costs of the year: 630,000 EUR; weighted average of the outstanding amounts: 9,000,000 EUR (treasury datum). Treasury has recorded all this interest as an expense.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Borrowing costs of the year on the general borrowings€630,000.00
Weighted average of the general borrowings outstanding€9,000,000.00
Expenditure of 1 January, weighted€1,200,000.00
Expenditure of 1 April, weighted€675,000.00
Expenditure of 1 October, weighted€150,000.00
Furniture budget 20X6€18,000.00

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

  • Table of the general borrowings

  • Weighted expenditure on the platform

  • Furniture budget

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      10 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

        Which borrowings form the pool of general borrowings and how is the expenditure on the asset taken into account?

      2. Task 2Missing information

        What information is missing to adopt the weighted average of the borrowings?

      3. Task 3Calculation

        Compute the weighted average expenditure.

        Calculator

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

        Part 1 · Calculation

        Compute the weighted average expenditure.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      4. Task 4Calculation

        Compute the capitalisation rate.

        Calculator

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

        Part 1 · Calculation

        Compute the capitalisation rate.

        1. %

        Checks

        • 0 / 1 step entered
        • Amounts readable

      5. Task 5Calculation

        Compute the eligible costs.

        Calculator

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

        Part 1 · Calculation

        Compute the eligible costs.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      6. Task 6Calculation

        Apply the cap at the borrowing costs incurred.

        Calculator

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

        Part 1 · Calculation

        Apply the cap at the borrowing costs incurred.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      7. Task 7Journal entries

        Record the interest expense of the year and then the inclusion.

        Calculator

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

        Part 1 · Journal entry · Journal entries

        Entry 1 of 2

        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

        Calculator

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

        Part 2 · Journal entry · Journal entries

        Entry 2 of 2

        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

      8. Task 8Analysis

        Which disclosures should be given on the borrowing costs included?

      9. Task 9Effects on the financial statements

        What is their effect on the financial statements?

        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. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      10. Task 10Conclusion

        Write the conclusion.

      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 / 13).

      Document this file

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

      Normative references

      • IAS 23 §14
      • IAS 23 §18
      • IAS 23 §26