Question

1.The Scandium Company is commencing a new construction project, which is to be financed by borrowing. The key dates are as follows: 15 May 20X8 Loan interest relating to the project starts to be incurred 3 June 20X8 Technical site planning commences 12 June 20X8 Expenditures on the project start to be incurred 18 July 20X8 Construction work commences According to IAS23 Borrowing costs, from what date can Scandium commence the capitalization of borrowing costs?

a. 15 May 20X8

b. 3 June 20X8

c. 12 June 20X8

d. 18 July 20X8

2.The Palila Company purchased a varnishing machine for PHP150,000 on 1 January 20X7. The company received a government grant of PHP13,500 in respect of this asset. Company policy was to depreciate the asset over 4 years on a straight-line basis and to treat the grant as deferred income. Under IAS20 Government grants and government assistance, what should be the carrying amounts of the machine and the deferred income ("DI") balance at 31 December 20X8?

a. PHP75,000 PHP6,750

b. PHP112,500 PHP10,125

c. PHP112,500 PHP10,125

d. PHP75,000 PHP13,500

3.The December 31, 2019 and 2018 comparative financial statements of World Gallery Company showed equipment with an original cost P379,000 and P344,000 with accumulated depreciation of P153,000 and P128,000, respectively. During 2019, the company purchased equipment costing P50,000, and sold equipment with a carrying value of P9,000. What amount should the company report as depreciation expense for 2019?

a. 19,000

b. 25,000

c. 31,000

d. 34,000

Answer 1

ans.1 OPTION d

All relevant conditions in IAS23 para 17 are fulfilled by the date when expenditures on the project start to be incurred.

hence, the correct answer is 18 July 20X8 when Construction work commences.

ans.2 OPTION a

Carrying amount is PHP75,000, Deferred income PHP6,750 is the correct answer.

As per IAS20 para 26, where the grant is recognized as income on a systematic and rational basis over the life of the asset. The deferred income in the statement of financial position is reduced each year by the amount credited to profit or loss. The asset is depreciated over its useful life per IAS16.

ans.3 OPTION c

379,000 - 50,000 - 344,000 = 15,000 Cost of equipment sold

15,000 - 9,000 carrying amount = 6,000 Accumulated depreciation

153,000 + 6,000 - 128,000 = 31,000 Depreciation expense.