Reference no: EM132618411

Question - On 1 July 2019 Regina Ltd borrowed $200,000 at 6% pa to fund the construction of a new warehouse, a qualifying asset. The cash received was immediately placed on deposit earning interest at 2% pa. Construction did not begin until 1 August 2019 due to delays in agreeing the plans with the architects.

A construction payment of $120,000 was made on 1 August 2019 and the remaining $80,000 paid on 1 May 2020. The warehouse was ready for use on 1 June 2020 but Regina Ltd did not start to use it until 1 July 2020. The directors estimate that the warehouse has a useful life of 10 years.

Regina Ltd recognised the net interest in the statement of profit or loss for the year ended 30 June 2020. The construction costs were included in assets in the course of construction in the statement of financial position as at 30 June 2020. No depreciation is charged on assets in the course of construction.

Required - Explain the required IFRS financial reporting treatment of the issue above in the financial statements of the company. Show all relevant calculations and set out the required adjustments in the form of journal entries.