Financial Accounting 242
(20 marks: 36 minutes)
Class test 1
Ignore VAT
Calatheas Ltd (“Calatheas”) purchased land on 1 October 2018, at a cost of R1,500,000. The
land was purchased with the intention to construct a building, which would be used as an
administrative building. Calatheas has a 31 October year end.
Construction of building
On 1 August 2019, Calatheas obtained two loans, which will be used for a variety of projects
and utilised to construct the building and:
•
Loan A: R6,000,000 at 12%
•
Loan B: R3,000,000 at 14%
Interest is capitalised every month.
Due to protest action in the area, construction of the building started on 1 November 2019.
Expenditure was incurred and paid at the end of each month, over the following periods:
Period
Expenditure per month
1 November 2019 – 30 November 2019
R1,940,000
1 December 2019 – 31 March 2020
R790,000
1 April 2020 – 31 October 2020
R175,000
On 1 November 2020, the building was complete and was available for use, but the owner did
not like the colour of building. The construction company then painted the building a new
colour, at a cost of R50,000 and thereafter the building was occupied on 1 December 2020.
Additional information
The cost model is applied to buildings and is depreciated over a useful life of 35 years, with
R700,000 residual value.
You are required to:
1. Calculate the total borrowing costs which may be capitalised to the cost of the
building.
(20 marks)