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

Omega Group's parent borrowed $20m at 7% to fund general purposes. During the year, a subsidiary constructed a qualifying asset using only funds drawn from the group's general pool: expenditure of $3m from 1 January and a further $3m from 1 July, with the year ending 31 December. The group's weighted average capitalisation rate on general borrowings was 7%. The asset was still under construction at year end. What amount should be capitalised in the consolidated financial statements?

The amount is $315,000. For general borrowings IAS 23 applies the weighted average capitalisation rate to expenditure on the asset. Weighted expenditure is $3m for twelve months plus $3m for six months, equal to $4.5m, and multiplying by 7% gives $315,000.

  1. A$315,000Correct
  2. B$210,000
  3. C$420,000
  4. D$1,400,000

Explanation

For general borrowings, apply the capitalisation rate to the weighted average expenditure: $3m x 12/12 + $3m x 6/12 = $4.5m. $4.5m x 7% = $315,000. Option C applies the rate to the full $6m. Option B ignores the second tranche timing. Option D uses the entire borrowing, which exceeds the cap.

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