Question 1

**Section B - Case 2: EcoWind (Question 1 of 5)**

*Scenario:* EcoWind, a renewable energy firm, began constructing a new wind farm on 1 March 20X5. Construction costs (excluding interest) totaled $3,000,000. To fund this, EcoWind took out a $2,000,000 specific loan at 6% per annum on 1 February 20X5. Construction was completed on 30 November 20X5.

EcoWind received a $500,000 government grant on 1 December 20X5 to help fund the wind farm, which has a 20-year useful life. EcoWind uses the deferred income method for grants.

On 31 December 20X5, EcoWind tested an older solar plant for impairment. Its carrying amount was $1,500,000. Its Fair Value Less Costs of Disposal was $1,200,000 and its Value in Use was $1,300,000.

*Question:* Under IAS 23, how much borrowing cost should be capitalized into the cost of the wind farm in 20X5?

Accepted Answer

Determine the capitalization period. It starts when expenditure is incurred, borrowing costs are incurred, AND activities to prepare the asset are in progress (1 March). It ends when the asset is substantially complete (30 Nov). Calculate interest for this specific period.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Starting capitalization on 1 February when the loan was drawn down, resulting in 10 months of interest.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 2

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