Min Limited constructed a building during 2024, details of which are as follows:

• Min Limited secured a loan to finance the construction of a building (a qualifying asset) on 5 January 2024 and began incurring interest on the loan from 1 February 2024 when the loan funds became available.

• Min Limited purchased the first batch of raw materials (sand, cement and bricks) on 10 February 2024.

• The construction of the building began on 20 February 2024.

(Select one correct option only)

Consider the following statements in context of IAS 23 Borrowing costs:

1. Borrowing costs may never be capitalised to the acquisition of financial assets.

2. Borrowing costs that are directly attributable to the construction of investment property must always be expensed.

3. Borrowing costs that are directly attributable to the construction of inventory must always be expensed.

A loan of N$100 000 was raised specifically for the construction of a plant, which met the definition of a qualifying asset. The loan was used to acquire the necessary raw materials and pay the related labour costs necessary for the construction of this asset. A further loan of N$20 000 had to then be raised to buy an extra 3 tons of material X, because the original load of material X (also having cost N$20 000) was completely destroyed in a freak storm.

(Choose one correct option only)

On 1 March 20X1, Light Limited began the construction of a new factory plant, a qualifying asset. On the same day, a specific loan was raised. Capitalisation of the borrowing costs on this specific loan began immediately since all criteria for capitalisation were met. However, construction activities were halted for the entire month of June 20X1 due to the entity experiencing cash flow problems. 

A company financed the construction of a plant through an issue of shares. The dividends declared on these shares may not be capitalised to the cost of the plant.

(Indicate whether the above statement is true or false)

Dairy Limited manufactures specialist cheeses. As part of the production process, the cheese is required to be stored for a year in order to fully mature. As the company does not have the necessary space, the cheese is stored in a rented-out warehouse, for which the company pays C500 000 per annum. Dairy must expense this rental cost.

(Indicate whether the above statement is true or false)

Pharmacy Limited’s manufacturing process requires such a complex raw material catalogue system that dedicated administrators need to be employed in the factory to run it. These administrative staff are paid N$45 000 per month. Pharmacy must capitalise the administrative staff salaries to inventory.

(Indicate whether the above statement is true or false)

A contract for revenue from services of N$100 000 is partially complete and due to the contractual terms and conditions, none of the revenue from the partially complete contract may yet be recognised. The costs of providing the services during the current year is N$40 000. The following journal should be processed:

(Indicate whether the above statement is true or false)

Depreciation on a machine that is used exclusively to manufacture inventories is always capitalised to the inventory account

(Indicate whether the statement above is true or false)

A depreciable asset was purchased on 1 January 20X1 at a cost of N$100 000. It is depreciated over a 5-year useful life to a residual value of nil. At 31 December 20X1, it has a recoverable amount of N$72 000. At 31 December 20X2, its recoverable amount is N$70 000.

(Choose one correct option only)