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Example 2

The document outlines a financial analysis comparing total finance costs, borrowing costs, and finance charges from 2021 to 2023. It highlights the implications of capitalizing interest on finance costs, assets, and profits, showing a decrease in assets and profit due to accumulated capitalized interest. The analysis indicates varying impacts on profits and deferred tax across the three years.

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Phumzile Mpanza
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13 views4 pages

Example 2

The document outlines a financial analysis comparing total finance costs, borrowing costs, and finance charges from 2021 to 2023. It highlights the implications of capitalizing interest on finance costs, assets, and profits, showing a decrease in assets and profit due to accumulated capitalized interest. The analysis indicates varying impacts on profits and deferred tax across the three years.

Uploaded by

Phumzile Mpanza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Example 2: Capitalise interest to Expensing interest

SOLUTION 1

Step 1: Calculation

2023 2022 2021

Total finance cost 368 000 310 000 360 000

Borrowing cost (168 000) (110 000) (160 000)

Finance charge 200 000 200 000 240 000

Step 2: Implication on Finance cost in statement of comprehensive

2023 2022 2021

Increase in finance cost (168 000) (110 000) (160 000)

(finance cost increase


with the add back of
interest capitalised to
make up total finance
cost)

Decrease in 45 360 29 700 43 200


Decrease@27%

Increase in profits 45 360 80 300 116 800

Step 3: Implication on the Assets in statement of financial position

2023 2022 2021

Decrease in Assets 438 000 270 000 160 0000


(Decrease is based on
(168 000 + 110 000 (110 000 + 160 000)
accumulation of
+ 160 000)
capitalised interest)

Decrease in deferred (118 260) (72 900) (43 200) _


tax

Decrease in profit 319 740 197 100 116 800

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