MINICASE RR.docx

# MINICASE RR.docx - BKAR2023 FINANCIAL ACCOUNTING AND...

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QUESTION 1 On 31 December 2014, Bina Bhd borrowed RM3,000,000 at 12% payable annually to finance the construction of a new building. In 2015, the company made the following expenditures related to the building: 1 March RM360,000; 1 June, RM 600,000; 1 July, RM1,500,000; 1 December, RM1,200,000. Additional information is provided below: 1. Other debt outstanding: 10-year, 11% bond, 31 December 2008, interest payable annually RM4,000,000 6-year, 10% note, dated 31 December 2012, interest payable annually RM1,600,000 2. Expenditure on 1 March 2015 included land cost of RM150,000 3. Interest revenue earned in 2015 on funds related to specific borrowing RM49,000 Required: (a) Determine the amount of interest to be capitalized in 2015 in relation to the construction of the building. (b) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at 31 December 2015. Suggested solution: (a) Computation of Weighted-Average Accumulated Expenditures Expenditures Date Amount X Capitalization Period = Weighted-Average Accumulated Expenditures 1 March RM 360,000 10/12 RM 300,000 1 June 600,000 7/12 350,000 1 July 1,500,000 6/12 750,000 1 December 1,200,000 1/12 100,000 3,660,000 1,500,000 1 BKAR2023 FINANCIAL ACCOUNTING AND REPORTING II (A152) MINI CASE 1 Property, Plant and Equipment, Part 1 DUE DATE: 2 March 2016 (WEDNESDAY) before 12.00 noon

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Computation of Avoidable Interest Weighted-Average Accumulated Expenditures X Interest Rate = Avoidable Interest RM1,500,000 12% (Construction loan) RM180,000 Computation of Actual Interest Actual interest: 3,000,000 X 12% 360,000 4,000,000 X 11% 440,000 1,600,000 X 10% 160,000 960,000 Note : Use avoidable interest for capitalization purposes because it is lower than actual interest. The RM180,000 of avoidable interest is reduced by the RM49,000 of interest revenue earned on specific borrowing. (b) Buildings ........................................................................................................ 131,000 Interest Expense* ........................................................................................... 829,000 Cash (360,000 + 440,000 + 160,000) ............................................... 960,000 *Actual interest for year 960,000 Less: Amount capitalized (180,000 –49,000) 131,000 Interest expense debit 829,000 QUESTION 2 Pelentong Bhd is an established construction company in the northern area of Kedah. The company financial year end is 31 December each year. Pelentong Berhad constructed a new
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