Reference no: EM132419480

Problem: Inglewood Landscaping Corp. began constructing a new plant on December 1, 2020. On this date, the company purchased a parcel of land for $184,000 cash. In addition, it paid $2,000 in surveying costs and $4,000 for title transfer fees. An old dwelling on the premises was immediately demolished at a cost of $3,000, with $1,000 being received from the sale of materials.

Architectural plans were also formalized on December 1, 2020, when the architect was paid $30,000. The necessary building permits costing $3,000 were obtained from the city and paid on December 1, 2020. The excavation work began during the first week in December and payments were made to the contractor as follows:

Date of Payment              Amount of Payment

Mar. 1                                        $240,000

May 1                                          360,000

July 1                                            60,000

The building was completed on July 1, 2021.

To finance the plant construction, Inglewood borrowed $600,000 from a bank on December 1, 2020. Inglewood had no other borrowings. The $600,000 was a 10-year loan bearing interest at 10%.

Required

Question 1: Calculate the balance in each of the following accounts at the year ends December 31, 2020, and December 31, 2021. Assume that Inglewood prepares financial statements in accordance with IFRS.

• 1. Land
• 2. Buildings
• 3. Interest Expense

Question 2: Identify what the effects would be on Inglewood's financial statements for the years ended December 31, 2020 and 2021, if its policy were to expense all borrowing costs as they are incurred. Assume that Inglewood prepares financial statements in accordance with ASPE.

Question 3: Show the balance in the Buildings and Interest Expense accounts at the 2020 and 2021 fiscal years under IFRS and ASPE. Indicate the differences in the balances for each year. Do you believe the amounts of the differences are material to the statement of income and statement of financial position?

Question 4: Discuss the financial statement effects of capitalization of borrowing costs. Contrast the financial statement effects of capitalizing borrowing costs against the financial statement effects of paying for the construction with internally generated funds.