Reference no: EM133040243

Question -

PART A - RC Corporation has an administrative property which it bought several years ago at a cost of $20,000,000 on 1 March 2016. The company has been depreciating the building over forty years on a straight-line basis with nil expected residual value. The asset is depreciated on a monthly basis.

On April 1, 2020 the senior managers decided the vacate the premises and rent it out as a commercial property. The fair value of the property at the 31 December 2020 was determined to be $24,000,000.

REQUIRED -

(a) Show the Statement of Comprehensive Income extract for the year ended 31 December 2020 to record the above information

(b) Show the Statement of Financial Position extract as at 31 December 2020 to record the above information

(c) State two differences in the accounting treatment of property under IAS16 and investment property under IAS40.

Part B - Joblane Construction Company (RCC) borrowed $40,000,000 from the First National Bank on the January 1, 2019 to assist with funding of a new commercial property in Montego Bay. The coupon interest rate on the loan was 12%, but the effective interest rate was 15%.

The loan was received on January 1, 2019 but construction did not start on the project until April 1,2019. On February 1, 2019 RCC invested $15,000,000 until 31 July 2019 and received interest income at an annual rate of 8%. Construction was suspended for the month of August 2019.

The project was completed and ready for use on the 31 December 2019.

REQUIRED -

a) The Statement of Comprehensive Income extract for the year ended 31 December 2019.

b) The Statement of Financial Position extract as at the 31 December 2019.

(c) Explain the period of time over which borrowing cost should be calculated.