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CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs

Question

Dompoase Ltd incurred the following borrowing costs during the financial year 2018:

GH¢’000
Overdraft interest	12
Foreign currency loan interest (correctly translated into GH¢)	84
Foreign currency loan exchange differences on capital	140

In addition, a three-year fixed-rate GH¢2 million loan was taken out on 1 January 2018 at 6.5%. A loan set-up fee was charged at GH¢20,000. This increased the effective interest rate on the loan to 6.88%.

Required:
Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

Answer

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Tags: Borrowing Costs, Capitalization, Foreign Currency Loan, Interest, Overdraft
Level: Level 3

Series: MAY 2020

FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation

This question requires preparing an adjusted cash book, a bank reconciliation statement, and an explanation of why the reconciliation is necessary.

Question

On April 6, 2020, Alhaji Mogaji received his bank statements for the month ended March 31, 2020. The bank statement showed a balance of N41,740,000 (overdraft) as at March 31, while the cash book showed a balance of N52,599,000 (Credit) as at that date. On examination of the cash book and the bank statements, the following were discovered:

(i) Bank charges of N201,000 had not been recorded in the cash book;
(ii) Alhaji Mogaji exceeded his overdraft limit during the month of March. The bank had therefore charged him a default penalty of N250,000. This was not reflected in the cashbook;
(iii) A sum of N1,250,000 had been credited to Alhaji Mogaji’s bank account in error;
(iv) A cheque for N1,230,000 had been returned by the bank as dishonoured, and the bank charged Alhaji Mogaji N15,000. This was not reflected in the cash book;
(v) Cash receipts of N3,740,000 were posted as cash payments of N4,730,000 in the cash book;
(vi) On March 21, Alhaji Mogaji transferred cash of N650,000 to his personal bank account. This was credited to the business bank account in error by the bank;
(vii) Standing orders and direct debits of N1,115,000 had not been posted to the cash book;
(viii) Customers had transferred N2,170,000 directly to the bank account, and credit alert was received, but no record had been made in the cash book;
(ix) An amount of N5,120,000 lodged into the bank account on March 31, 2020, had not been credited by the bank;
(x) The following cheques, drawn on the bank account, had not been presented to the bank for payment as at March 31, 2020:
- Cheque No. 4528 dated March 11, 2020, N840,000
- Cheque No. 4535 dated March 28, 2020, N1,740,000
- Cheque No. 4537 dated March 31, 2020, N3,670,000.

You are required to:
a. Prepare the adjusted cash book for the month of March, 2020. (9 Marks)
b. Prepare a statement on March 31, 2020, reconciling the bank statement balance with the adjusted cash book balance. (7 Marks)
c. Explain two reasons for preparing a bank reconciliation statement on a regular basis. (4 Marks)

Answer

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Tags: Cash Book, Financial Adjustments, Financial Reporting, Overdraft, Reconciliation
Level: Level 1

Topic: Bank reconciliations
Series: NOV 2022

FA – May 2016 – L1 – SA – Q10 – Bank Reconciliation

A question on interpreting the meaning of a credit balance in the cash book.

Question

The bank column in the cash book shows a credit balance of N50,000. This means:
A. A total payment of N50,000
B. A gross receipt of N50,000
C. A balance of N50,000 in the bank
D. An overdraft of N50,000
E. A balance of N50,000 cash

Answer

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Tags: Bank Balance, Cash Book, Overdraft
Level: Level 1

Topic: Bank reconciliations
Series: MAY 2016

CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs

Question

Dompoase Ltd incurred the following borrowing costs during the financial year 2018:

GH¢’000
Overdraft interest	12
Foreign currency loan interest (correctly translated into GH¢)	84
Foreign currency loan exchange differences on capital	140

Required:
Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

Answer

Find Related Questions by Tags, levels, etc.

Tags: Borrowing Costs, Capitalization, Foreign Currency Loan, Interest, Overdraft
Level: Level 3

Series: MAY 2020

FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation

This question requires preparing an adjusted cash book, a bank reconciliation statement, and an explanation of why the reconciliation is necessary.

Question

(i) Bank charges of N201,000 had not been recorded in the cash book;
(ii) Alhaji Mogaji exceeded his overdraft limit during the month of March. The bank had therefore charged him a default penalty of N250,000. This was not reflected in the cashbook;
(iii) A sum of N1,250,000 had been credited to Alhaji Mogaji’s bank account in error;
(iv) A cheque for N1,230,000 had been returned by the bank as dishonoured, and the bank charged Alhaji Mogaji N15,000. This was not reflected in the cash book;
(v) Cash receipts of N3,740,000 were posted as cash payments of N4,730,000 in the cash book;
(vi) On March 21, Alhaji Mogaji transferred cash of N650,000 to his personal bank account. This was credited to the business bank account in error by the bank;
(vii) Standing orders and direct debits of N1,115,000 had not been posted to the cash book;
(viii) Customers had transferred N2,170,000 directly to the bank account, and credit alert was received, but no record had been made in the cash book;
(ix) An amount of N5,120,000 lodged into the bank account on March 31, 2020, had not been credited by the bank;
(x) The following cheques, drawn on the bank account, had not been presented to the bank for payment as at March 31, 2020:
- Cheque No. 4528 dated March 11, 2020, N840,000
- Cheque No. 4535 dated March 28, 2020, N1,740,000
- Cheque No. 4537 dated March 31, 2020, N3,670,000.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Book, Financial Adjustments, Financial Reporting, Overdraft, Reconciliation
Level: Level 1

Topic: Bank reconciliations
Series: NOV 2022

FA – May 2016 – L1 – SA – Q10 – Bank Reconciliation

A question on interpreting the meaning of a credit balance in the cash book.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bank Balance, Cash Book, Overdraft
Level: Level 1

Topic: Bank reconciliations
Series: MAY 2016

Question Tag: Overdraft

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CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs

Required:
Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation

This question requires preparing an adjusted cash book, a bank reconciliation statement, and an explanation of why the reconciliation is necessary.

FA – May 2016 – L1 – SA – Q10 – Bank Reconciliation

A question on interpreting the meaning of a credit balance in the cash book.

CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs

Required:
Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation

This question requires preparing an adjusted cash book, a bank reconciliation statement, and an explanation of why the reconciliation is necessary.

FA – May 2016 – L1 – SA – Q10 – Bank Reconciliation

A question on interpreting the meaning of a credit balance in the cash book.

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CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs

Required: Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

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FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation

This question requires preparing an adjusted cash book, a bank reconciliation statement, and an explanation of why the reconciliation is necessary.

You're reporting an error for "FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation"

FA – May 2016 – L1 – SA – Q10 – Bank Reconciliation

A question on interpreting the meaning of a credit balance in the cash book.

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CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs

Required: Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

You're reporting an error for "CR – May 2020 – L3 – Q2b – Capitalization of Borrowing Costs"

FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation

This question requires preparing an adjusted cash book, a bank reconciliation statement, and an explanation of why the reconciliation is necessary.

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FA – May 2016 – L1 – SA – Q10 – Bank Reconciliation

A question on interpreting the meaning of a credit balance in the cash book.

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Required:
Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).

Required:
Determine the maximum amount that could potentially be capitalized as borrowing costs during the period (assuming an asset was being financed using all available finance).