Gled Limited began the construction of a new building on 1 February 2015. The building is a qualifying asset for the purposes of IAS23. Construction costs incurred in 2015 were paid as follows; Payment Date On 1 February On 1 July On 1 November Amount R500 000 R600 000 R800 000 The construction of the building ended on 1 December 2015 when the building was complete and ready for its intended use. This building is to be depreciated over 10 years to a nil residual value using the straightline method. The construction was financed through a loan of R1 900 000 from Cash Limited. The loan was raised on 1 January 2015 specifically to facilitate the construction of the building. The interest rate is 25% per annum. There are no capital repayments during the year. Surplus funds were invested at 20% per annum. The interest is compounded annually. Required (a) Calculate the total interest incurred and total borrowing costs that must be capitalised during the year ended 31 December 2015 (b) Calculate the depreciation for the year ended 31 December 2015 (c) Calculate the carrying amount of the building as at 31 December 2015
Gled Limited began the construction of a new building on 1 February 2015. The building is a qualifying asset for the purposes of IAS23. Construction costs incurred in 2015 were paid as follows; Payment Date On 1 February On 1 July On 1 November Amount R500 000 R600 000 R800 000 The construction of the building ended on 1 December 2015 when the building was complete and ready for its intended use. This building is to be depreciated over 10 years to a nil residual value using the straightline method. The construction was financed through a loan of R1 900 000 from Cash Limited. The loan was raised on 1 January 2015 specifically to facilitate the construction of the building. The interest rate is 25% per annum. There are no capital repayments during the year. Surplus funds were invested at 20% per annum. The interest is compounded annually. Required (a) Calculate the total interest incurred and total borrowing costs that must be capitalised during the year ended 31 December 2015 (b) Calculate the depreciation for the year ended 31 December 2015 (c) Calculate the carrying amount of the building as at 31 December 2015
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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![Gled Limited began the construction of a new building on 1 February 2015. The building is a qualifying
asset for the purposes of IAS23. Construction costs incurred in 2015 were paid as follows;
Payment Date
On 1 February
Amount
R500 000
On 1 July
R600 000
On 1 November
R800 000
The construction of the building ended on 1 December 2015 when the building was complete and ready for
its intended use. This building is to be depreciated over 10 years to a nil residual value using the straightline
method.
The construction was financed through a loan of R1 900 000 from Cash Limited. The loan was raised on 1
January 2015 specifically to facilitate the construction of the building. The interest rate is 25% per annum.
There are no capital repayments during the year. Surplus funds were invested at 20% per annum. The
interest is compounded annually.
Required
(a) Calculate the total interest incurred and total borrowing costs that must be capitalised during
the year ended 31 December 2015
(b) Calculate the depreciation for the year ended 31 December 2015
(c) Calculate the carrying amount of the building as at 31 December 2015](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2c67b84c-531a-4079-bc7d-aecc5b39efc6%2F54721d70-0db3-4bcc-bfdf-ef15a7deffa4%2Fufu6y5n_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Gled Limited began the construction of a new building on 1 February 2015. The building is a qualifying
asset for the purposes of IAS23. Construction costs incurred in 2015 were paid as follows;
Payment Date
On 1 February
Amount
R500 000
On 1 July
R600 000
On 1 November
R800 000
The construction of the building ended on 1 December 2015 when the building was complete and ready for
its intended use. This building is to be depreciated over 10 years to a nil residual value using the straightline
method.
The construction was financed through a loan of R1 900 000 from Cash Limited. The loan was raised on 1
January 2015 specifically to facilitate the construction of the building. The interest rate is 25% per annum.
There are no capital repayments during the year. Surplus funds were invested at 20% per annum. The
interest is compounded annually.
Required
(a) Calculate the total interest incurred and total borrowing costs that must be capitalised during
the year ended 31 December 2015
(b) Calculate the depreciation for the year ended 31 December 2015
(c) Calculate the carrying amount of the building as at 31 December 2015
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