Question 1

Section A

EcoResort Developers took out a $4,000,000 specific bank loan on 1 February 20X3 at an interest rate of 6% per annum to fund the construction of a new eco-lodge. Construction began on 1 March 20X3. The surplus funds were temporarily invested, earning interest of $15,000 during February and $10,000 during March. Construction was completed on 30 November 20X3.

What amount of borrowing costs should be capitalized as part of the cost of the eco-lodge for the year ended 31 December 20X3?

Accepted Answer

Determine the capitalization period (starts when activities begin, ends when completed). Calculate interest for this period. Deduct any investment income earned on the specific loan during this exact period.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Deducting the February investment income or capitalizing interest from February.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 6

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