Question

5.(14marks) please list the detail of calculation On January 1, 20x5, Hassan Co, a publicly accountable entity, started the construct e on that date. asset. The asset was completed on September 30, 20x5, and was put into us The following direct costs in the construction of the asset were paid on the following dates: January 1, 20X5 $80,000 March 1, 20X5 April 1, 20X5 May 15, 20X5 July 1, 20X5 Sept. 1, 20X5 $70,000 $105,000 $60,000 $40,000 $150,000 The company's borrowings are as follows: 1, A $150,000, 6.5% one-year note dated January 1, 20X5-this note relates specifically to the self-constructed asset. The note was repaid on September 30, 20X5. 2. Bonds payable in the amount of $8,000,000 issued at face value -the annual interest or these bonds is 8%. The bonds were outstanding throughout the year. 3. A bank loan payable in the amount of $12,000,000 bearing interest at 6%--The loan was outstanding throughout the year. Required: Calculate the cost of the asset as at September 30, 20X5, assuming Hass December 31, 20X5, year end. an has a

Answer 1

Step 1

Since the asset was completed on September 30, 20X5, all expenses relating to the construction of Asset are required to be included in the cost of the asset. All financial expenses incurred or accrued after construction of the asset are of revenue nature are not to be included in the cost of asset.

Step 2

As explained in step 1 above, interest accrued on bonds and bank loans after September 30, 20X5, would not be included in the cost of Asset.

Step 3

Hence Cost of the Asset would be as under

Direct Cost Amount

January 1, 20X5    $ 80,000

March 1, 20X5 $ 70,000

April 1, 20X5 $ 105,000

May 15, 20X5    $ 60,000

July 1, 20X5 $ 40,000

September 1, 20X5    $ 150,000

Total $ 505,000

Add Financial cost as under

Borrowing charges on one year note $    7,312.5

Interest on Bonds up to September 31,20X5 $    480,000

Interest on bank loan upto September 30    $ 540,000

Total Financial charges    $ 1,027,312.5

Total Cost of the Asset    $ 1,532,312.5