PORCHE (Only available in English)
13 MARKS
Introduction
You are the financial advisor for Porsche SA (Pty) Ltd ("Porsche SA"), a company in the luxury
motor vehicle industry. Your client’s year end is 31 December 2010.
On 1 January 2010 Porsche SA borrowed R 10 000 000 at 9% from Investec bank. The loan
was specifically obtained for the construction of a new race course. Interest accrues annually
at the end of the year and it paid on date of accrual. No capital portion of the loan was repaid
during the 2010 financial year.
Construction only started on 1 February 2010. Porsche invested any surplus funds in a money
market account earning 6% per annum. Ignore compounding of interest earned.
Porsche SA paid the following amounts over to the construction company at the following
dates:
Dates
01-Mar-10
01-Jul-10
01-Oct-10
Rand
2 000 000
3 000 000
4 000 000
9 000 000
Construction was stopped for the whole month of April due to a nationwide construction
workers strike. They also ceased construction for 2 weeks in May while waiting for the tarmac
to dry but this is normal for the construction of a race course.
The race course was completed on 30 November 2010 but Porsche was holding back the final
payment until the race course was brought into use. The race course was only brought into
use on 31 December 2010.
Porsche SA plans to use this race course for Porsche clients to go on advanced driving
courses and to use it to host national Porsche events.
REQUIRED:
(a)
Calculate the amount of the borrowing costs that may be
capitalised to the cost of the asset.
TOTAL MARKS
MARKS
Subtotal
Total
13
13
13