1
BKAR2023 FINANCIAL ACCOUNTING AND REPORTING 11 (A171)
MINI CASE CHAP 1 PROPERTY, PLANT & EQUIPMENT
DUE DATE: 26 September 2017 (Tuesday before 4pm)
QUESTION 1
On 1 January 2016, Azharina Sdn. Bhd. signed a contract to construct a new building and
borrowed RM3,000,000 at 12% payable annually to finance the construction which is estimated
to take a year to complete. On 1 January 2016, the company purchased a land for the building
construction with a cost of RM200,000. The company made the following expenditures related
to this building: 1st March RM360,000; 1st June, RM600,000; 1st July, RM1,500,000; 1st
December, RM1,200,000. Additional information according to other debt outstanding is
provided as follows.
a. 15 year, 11% bond, 31 December 2013, interest payable annually RM4,000,000.
b. 12-year, 10% note, dated 31 December 2013, interest payable annually RM1,600,000.
REQUIRED:
Determine the amount of interest to be capitalized in 2016 in relation to the construction of
building.
Date
(2016)
Actual
Expenditures
Capitalization
Period
Weighted Average
Accumulated Expenditures
1 January
200,000
12/12
200,000
1 March
360,000
10/12
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
Total
3,860,000
1,700,000
Debt Interest Rate Actual Interest
Specific Debt 3,000,000 12% 360,000
General Debt 4,000,000 11% 440,000
1,600,000 10% 160,000
8,600,000 960,000
Accumulated Expenditures Interest Rate Avoidable Interest
1,700,000 12% 204,000
Actual Interest RM960,000
Avoidable Interest RM204,000 √
The amount of interest to be capitalized in 2016 is avoidable interest, RM204,000 which is
lower.
QUESTION 2
On 31 December 2015, Hanisah Sdn. Bhd. borrowed RM3,000,000 at 12% payable annually to
finance the construction of a new building, which is estimated to take a year to complete. In
2016, the company made the following expenditures related to this building: 1st March
RM360,000; 1st June, RM600,000; 1st July, RM1,500,000; 1st December, RM1,200,000.
Additional information is provided as follows.
a. Other debt outstanding – 15 year, 11% bond, 31 December 2013, interest payable
annually RM4,000,000. And 12-year, 10% note, dated 31 December 2013, interest
payable annually RM1,600,000.
b. Interest revenue earned in 2016 on funds related to specific borrowing RM49,000.
REQUIRED :
a) Determine the amount of interest to be capitalized in 2016 in relation to the construction
