Reference no: EM132942785

In 2020, Trademark, a public limited company, commenced construction of a shopping center. It considers that in order to fairly recognize the costs of its property, plant and equipment, it needs to enhance its accounting policies by capitalizing borrowing costs incurred whilst the shopping center is under construction. A review of past transactions suggests that there has been one other project involving assets with substantial construction periods where there would be a material misstatement of the asset balance if borrowing costs were not capitalized. This project was began in January 2019 and completed in the year ended 30 November 2019. Previously, Trademark had expensed the borrowing costs as they were incurred. The borrowing costs, which could be capitalized, are KShs 2 million for the 2019 asset and KShs 3 million for the 2020 asset.

• A review of the depreciation schedules of the larger plant and equipment not affected by the above has resulted in Trademark concluding that the basis on which these assets are depreciated would better reflect the resources consumed if calculations were on a reducing balance basis, rather than a straight-line basis. The revision would result in an increase in depreciation for the year to 30 November 2019 of KShs 5 million, an increase for the year-end 30 November 2020 of KShs 6 million and an estimated increase for the year ending 30 November 2020 of KShs 8 million.
• Additionally, Trademark has discovered that its accruals systems for year-end creditors for the financial year 30 November 2019 processed certain accruals twice in the ledger. This meant that expenditure services were overstated in the financial statements by KShs 2 million. However, Trademark has since reviewed its final accounts systems and processes and has made appropriate changes and introduced additional internal controls to ensure that such estimation problems are unlikely to recur.
• All of the above transactions are material to Trademark.

Required:

Problem 1: Discuss how the above events should be shown in the financial statements of Trademark for the year ended 30 November 2020.