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ACCA Strategic Professional · Strategic Business Reporting (International) · Non-current assets

Delta plc is building a head office. Construction began on 1 January 20X7. Work was suspended from 1 May to 31 August 20X7 because of a planning dispute, an extended interruption not required for the asset's preparation. Work resumed on 1 September and ended 31 December 20X7. Specific borrowing costs were $50,000 per month. What amount should be capitalised for the year?

The capitalised amount is $400,000. IAS 23 requires capitalisation to be suspended during extended periods in which active development is interrupted, so only the eight active months at $50,000 are capitalised, and the interest for the four suspension months is expensed.

  1. A$600,000
  2. B$400,000Correct
  3. C$300,000
  4. D$450,000

Explanation

IAS 23 requires capitalisation to be suspended during extended periods when active development is interrupted. Active months are Jan-Apr (4) and Sep-Dec (4), giving 8 months x $50,000 = $400,000. Option A ignores the suspension. The remaining $200,000 is expensed.

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