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

Zeta plc began constructing a factory on 1 January 20X5 and borrowed $4m specifically for the project at 6% per annum. The project took 12 months to complete. Under IAS 23, what amount of borrowing costs on the specific loan is eligible for capitalisation for the year, assuming no investment income was earned on unspent funds?

The eligible amount is $240,000. IAS 23 requires actual borrowing costs on a specific loan to be capitalised while a qualifying asset is under construction, so $4m multiplied by 6% for the full twelve months gives $240,000, less any investment income earned on unspent funds, which here is nil.

  1. A$120,000
  2. B$240,000Correct
  3. C$480,000
  4. D$0, because borrowing costs must be expensed

Explanation

Specific borrowings are capitalised at actual cost incurred during the construction period: $4m x 6% x 12/12 = $240,000. Option A halves the period. Option C uses 12%, which is wrong. Option D ignores that IAS 23 requires capitalisation for qualifying assets.

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