Woodward Co is a property construction company, which is currently self-building a new head office. Building activities on the head office began on 1 August 2015 and at the year end of 31 December 2015, the property is still incomplete. The project is running late as a result of a month of strike action by Greenholme’s employees in October 2015. The costs incurred to date in the construction are as follows:                                                              $’000 Site selection                                  50 Purchase price of land               1,800 Building materials                         700 Site preparation                            150 Labour (Greenholme employees) 950 Project manager’s salary                80 External architect’s fees                 25 Administrative overheads              30 The cost of building materials includes $20,000 relating to non-returnable materials that were ordered in error and are not appropriate for this project. These materials are expected to be used on an alternative project. The head office project has largely been funded by way of a $3million loan, which was drawn down from Central Bank on 1 June 2015. The loan carries annual fixed interest of 6%. In addition $600,000 of the expenditure to date has been funded from general borrowings:   • $2m 6% loan stock redeemable in 2018 • A $1m bank loan with an interest rate of 9% repayable in 2017 $300,000 was drawn down from these sources on 1 November 2015 and a further $300,000 was drawn down on 1 December 2015. Greenholme is part way through a contract to build a new football stadium at a contracted price of $30 million. Details of the progress of this contract at 1 January 2015 are shown below: $ million Cumulative sales revenue recognised 15.0 Cumulative cost of sales to date 11.2 Profit to date 3.8 The following information has been extracted from the accounting records at 31 March 2014: $ million Total progress payment received for work certified at 28 November 2015 18.0 Total costs incurred to date (excluding rectification costs below) 19.5 Rectification costs 17.0 Woodward Co has received progress payments of 90% of the work certified and invoiced at 28 November 2015. Woodward Co surveyor has estimated the sales value of the further work completed during December 2015 was $2 million. This was had not been invoiced to the customer at the reporting date. At 31 December 2015 the estimated remaining costs to complete the contract were $4.5 million. The rectification costs are the costs incurred in widening access roads to the stadium. This was the result of an error by Greenholme's architect when he made his initial drawings. The costs are not recoverable from the customer Woodward Co calculates the percentage of completion of its contracts as the proportion of sales value earned to date compared to the contract price. Questions 1, Excluding capitalised borrowing costs, what is the carrying amount of the head office at 31 December 2015? A $3,705,000 B $3,735,000 C $3,685,000 D $3,755,000   2. What amount of borrowing costs relating to the specific 6% loan are capitalised in the cost of the head office at 31 December 2015? A $60,000 B $75,000 C $90,000 D $105,000   3. What amount of interest relating to the general borrowings (the 5% loan stock and $1m bank loan) is capitalised in the cost of the head office at 31 December 2015? A $5,250 B $5,625 C. $6,750 D $7,000

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Woodward Co is a property construction company, which is currently self-building a new head office. Building activities on the head office began on 1 August 2015 and at the year end of 31 December 2015, the property is still incomplete. The project is running late as a result of a month of strike action by Greenholme’s employees in October 2015.

The costs incurred to date in the construction are as follows:

                                                             $’000

  • Site selection                                  50
  • Purchase price of land               1,800
  • Building materials                         700
  • Site preparation                            150
  • Labour (Greenholme employees) 950
  • Project manager’s salary                80
  • External architect’s fees                 25
  • Administrative overheads              30

The cost of building materials includes $20,000 relating to non-returnable materials that were ordered in error and are not appropriate for this project. These materials are expected to be used on an alternative project.

The head office project has largely been funded by way of a $3million loan, which was drawn down from Central Bank on 1 June 2015. The loan carries annual fixed interest of 6%.

In addition $600,000 of the expenditure to date has been funded from general borrowings:

 

• $2m 6% loan stock redeemable in 2018
• A $1m bank loan with an interest rate of 9% repayable in 2017

$300,000 was drawn down from these sources on 1 November 2015 and a further $300,000 was drawn down on 1 December 2015.

Greenholme is part way through a contract to build a new football stadium at a contracted price of $30 million. Details of the progress of this contract at 1 January 2015 are shown below:

$ million

Cumulative sales revenue recognised 15.0 Cumulative cost of sales to date 11.2 Profit to date 3.8

The following information has been extracted from the accounting records at 31 March 2014:

$ million

Total progress payment received for work certified at 28 November 2015 18.0 Total costs incurred to date (excluding rectification costs below) 19.5 Rectification costs 17.0

Woodward Co has received progress payments of 90% of the work certified and invoiced at 28 November 2015. Woodward Co surveyor has estimated the sales value of the further work completed during December 2015 was $2 million. This was had not been invoiced to the customer at the reporting date.

At 31 December 2015 the estimated remaining costs to complete the contract were $4.5 million.

The rectification costs are the costs incurred in widening access roads to the stadium. This was the result of an error by Greenholme's architect when he made his initial drawings. The costs are not recoverable from the customer

Woodward Co calculates the percentage of completion of its contracts as the proportion of sales value earned to date compared to the contract price.

Questions

1, Excluding capitalised borrowing costs, what is the carrying amount of the head office at 31 December 2015?

A $3,705,000 B $3,735,000 C $3,685,000 D $3,755,000

 

2. What amount of borrowing costs relating to the specific 6% loan are capitalised in the cost of the head office at 31 December 2015?

A $60,000 B $75,000 C $90,000 D $105,000

 

3. What amount of interest relating to the general borrowings (the 5% loan stock and $1m bank loan) is capitalised in the cost of the head office at 31 December 2015?

A $5,250 B $5,625 C. $6,750 D $7,000

 

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