Assignment# 01

Course : Financial Reporting-1(5062)

Semester: Spring, 2023

Name: Muhammad Rizwan

Roll No: BY479040

Reg No: 19PCR04174

Question No: 1
Accountant describe the Conceptional framework of accounting in three levels, you are required
to explain all the levels of conceptional framework of accounting in details.
Answer:

The conceptual framework of accounting is a crucial tool that guides the development and application
of accounting standards. It provides a consistent and coherent foundation for financial reporting,
ensuring that financial information is relevant, reliable, and comparable. The framework is organized
into three levels, each building upon the previous one to establish a comprehensive structure for
accounting principles. In this answer, we will explore each level in detail, highlighting its key
components and explaining their significance.

Level 1: The Objective of Financial Reporting

At the first level of the conceptual framework, the objective of financial reporting is defined. The
primary purpose of financial reporting is to provide useful information to various users, such as
investors, creditors, and other stakeholders, for making informed economic decisions. The objective
of financial reporting is to provide information about an entity's financial position, performance, and
cash flows that is both relevant and reliable.

Relevance: Financial information is considered relevant if it has the potential to influence the economic
decisions of users. To be relevant, information must be timely, have predictive and feedback value,
and be capable of making a difference in decision-making.

Reliability: Financial information is deemed reliable if it is free from material errors and biases,
faithfully represents the economic substance of transactions, and can be relied upon by users.
Reliability is enhanced through verifiability, comparability, and faithful representation.

Level 2: Qualitative Characteristics and Elements of Financial Statements

The second level of the conceptual framework focuses on the qualitative characteristics and elements
of financial statements. These characteristics and elements ensure that financial information is useful,
understandable, and comprehensive.
Qualitative Characteristics:

Relevance: As discussed earlier, information is relevant if it can impact the economic decisions of
users.
Faithful Representation: Information should faithfully represent the economic substance of
transactions and events, faithfully depicting what it purports to represent.
Comparability: Information should be presented in a manner that allows users to identify and
understand similarities and differences among different entities and periods.
Verifiability: Different knowledgeable and independent observers should be able to reach a consensus
regarding the faithful representation of the information.
Understandability: Information should be presented in a clear and concise manner, enabling users to
comprehend its meaning and significance.
Elements of Financial Statements:

Assets: Resources controlled by the entity, resulting from past events, and expected to generate future
economic benefits.
Liabilities: Present obligations of the entity, arising from past events, which are expected to result in
an outflow of resources.
Equity: The residual interest in the assets of the entity after deducting liabilities.
Income: Increases in economic benefits during the accounting period, resulting in an increase in equity,
other than contributions from equity participants.
Expenses: Decreases in economic benefits during the accounting period, resulting in a decrease in
equity, other than distributions to equity participants.
Level 3: Recognition, Measurement, Presentation, and Disclosure
The third level of the conceptual framework provides guidance on the recognition, measurement,
presentation, and disclosure of financial information.

Recognition: This refers to the process of including an item in the financial statements. It involves
assessing whether an element meets the definition and the criteria for recognition. For example, an
asset is recognized when it meets the definition of an asset and is probable to generate future economic
benefits.
Measurement: Once an item is recognized, it needs to be measured. The conceptual framework
recognizes several measurement bases, including historical cost, fair value, and present value. The
choice of measurement basis depends on the qualitative characteristics of the information and the
relevance and reliability trade-off.

Presentation: Financial statements should be presented in a manner that is clear, understandable, and
relevant to the users. The framework provides guidance on the structure and content of financial
statements, including the order of items, subtotals, and the use of notes.

Disclosure: Additional information that is not presented on the face of the financial statements but is
necessary for users' understanding is disclosed in the notes to the financial statements. The conceptual
framework emphasizes the importance of providing sufficient and relevant disclosures to ensure that
users have a complete picture of the entity's financial position and performance.

In conclusion, the conceptual framework of accounting encompasses three levels. The first level
defines the objective of financial reporting, which is to provide relevant and reliable information for
decision-making. The second level outlines the qualitative characteristics and elements of financial
statements, ensuring that the information is useful, understandable, and comprehensive. The third level
focuses on the recognition, measurement, presentation, and disclosure of financial information,
providing guidance on how to incorporate and present financial data in a meaningful and informative
manner. By adhering to this conceptual framework, accountants can ensure the consistency and quality
of financial reporting, facilitating effective decision-making for users of financial statements.

Q. 2 Nawaz Manufacturing limited (NML) deals in various products. One of its

products B2 is product using raw material A1. Production is carried out after
receiving confirmed sales order. Following information is available for the
month of January 2017: (20)

Opening inventory of A1 was 200 kg @ Rs. 3,000 per kg

Details of purchased made during the month ended 31 January 2017 are as follows:
 Date Quantity Price per kg (Rs)
1-Jan-17 250 2,800
15-Jan-17 250 2,900

50 kg of A1 purchased on 15 January 2017 were returned to the supplier on 16 January 2017

due to inferior quality of material supplied.
On 18 January 2017, 100 kg of A1 were destroyed. They had no scrap value.
Under normal circumstances 500 kg ofA1 produce 400 liters of B2.
Labor cost per liter of B2 was Rs. 700.
Overheads are estimated at 120% of a labor cost. The actual overheads for the month were Rs.
275,000.
There is no opening and closing work in progress.
Sales of B2 during the month of January were as follows:

Sale order date Delivery date Quantity Sales price per

(Liters) liter(Rs.)
2-Jan-17 4-Jan-17 100 7,000
26-Jan-17 28-Jan-17 160 6,250

NML uses weighted average method for valuation of inventory.

Required: prepare cost of goods sold statements for the month of January 2017 under each of
the following methods:
Perpetual inventory method
Periodic inventory method

ANS:

a. Perpetual inventory method:

Under the perpetual inventory method, the cost of goods sold is calculated on a real-time basis, keeping
track of every transaction related to inventory. Let's prepare the cost of goods sold statement for the
month of January 2017 using this method:

Opening Inventory of A1:

The opening inventory of A1 was 200 kg at a cost of Rs. 3,000 per kg. Therefore, the value of the
opening inventory is 200 kg * Rs. 3,000/kg = Rs. 600,000.

Purchases:
a) On January 1, 2017, 250 kg of A1 was purchased at a price of Rs. 2,800 per kg. The total cost of
this purchase is 250 kg * Rs. 2,800/kg = Rs. 700,000.
b) On January 15, 2017, 250 kg of A1 was purchased at a price of Rs. 2,900 per kg. However, 50 kg
was returned due to inferior quality. So, the actual purchase is 200 kg (250 kg - 50 kg) at a cost of Rs.
2,900 per kg. The total cost of this purchase is 200 kg * Rs. 2,900/kg = Rs. 580,000.

Total purchases for the month of January 2017 amount to Rs. 700,000 + Rs. 580,000 = Rs. 1,280,000.

Cost of Goods Available for Sale:

The cost of goods available for sale is the sum of the opening inventory and the total purchases: Rs.
600,000 + Rs. 1,280,000 = Rs. 1,880,000.

Cost of Goods Sold:

To calculate the cost of goods sold, we need to determine the amount of A1 used for production based
on the sales orders.

For the sale order dated January 2, 2017, with a delivery date of January 4, 2017, 100 liters of B2 were
sold. Under normal circumstances, 500 kg of A1 produces 400 liters of B2. Therefore, the amount of
A1 used for this sale is (100 liters/400 liters) * 500 kg = 125 kg.

For the sale order dated January 26, 2017, with a delivery date of January 28, 2017, 160 liters of B2
were sold. Following the same calculation, the amount of A1 used for this sale is (160 liters/400 liters)
* 500 kg = 200 kg.
The total amount of A1 used for production and subsequently sold is 125 kg + 200 kg = 325 kg.

To calculate the cost of goods sold, we need to determine the weighted average cost per kg of A1. The
weighted average cost is calculated by dividing the total cost of goods available for sale by the total
quantity of goods available for sale. In this case, the weighted average cost is Rs. 1,880,000/950 kg
(200 kg opening inventory + 750 kg purchases) = Rs. 1,978.95 per kg.

Therefore, the cost of goods sold is 325 kg * Rs. 1,978.95/kg = Rs. 642,530.75.

b. Periodic inventory method:

Under the periodic inventory method, the cost of goods sold is determined periodically, usually at the
end of the accounting period. Let's prepare the cost of goods sold statement for the month of January
2017 using this method:

Opening Inventory of A1:

The opening inventory of A1 was 200 kg at a cost of Rs. 3,000 per kg. Therefore, the value of the
opening inventory is 200 kg * Rs. 3,000/kg = Rs. 600,000.

Purchases:
The total purchases made during January 2017 amount to Rs. 1,280,000, as calculated earlier.

Total Goods Available for Sale:

The total goods available for sale is the sum of the opening inventory and the total purchases: Rs.
600,000 + Rs. 1,280,000 = Rs. 1,880,000.

Ending Inventory:
To calculate the ending inventory, we need to determine the quantity of A1 remaining after deducting
the amount used for production and subsequently sold. The quantity of A1 used for production is the
same as calculated under the perpetual inventory method, which is 325 kg. Therefore, the ending
inventory is 950 kg (200 kg opening inventory + 750 kg purchases) - 325 kg = 625 kg.
To determine the value of the ending inventory, we need to use the weighted average cost per kg of
A1. As calculated earlier, the weighted average cost is Rs. 1,978.95 per kg.

Therefore, the value of the ending inventory is 625 kg * Rs. 1,978.95/kg = Rs. 1,236,218.75.

Cost of Goods Sold:

The cost of goods sold is calculated by subtracting the value of the ending inventory from the total
goods available for sale: Rs. 1,880,000 - Rs. 1,236,218.75 = Rs. 643,781.25.
In conclusion, under the perpetual inventory method, the cost of goods sold for the month of January
2017 is Rs. 642,530.75, while under the periodic inventory method, the cost of goods sold is Rs.
643,781.25.

Q. 3 Define the following key terms with reference to International Accounting Standard:
(20)
i. Revenue versus expenses
ii. Current versus non-current assets
iii. Current versus non-current Liabilities
iv. Types of equity

ANS:

I. REVENUE VERSUS EXPENSES:

Revenue refers to the inflow of economic benefits during a specific period, resulting from the ordinary
activities of an entity. It can arise from the sale of goods, the rendering of services, or the use of entity's
resources by others in return for interest, royalties, or dividends. Revenue is recognized when it is
probable that future economic benefits will flow to the entity and can be reliably measured.

Expenses, on the other hand, refer to the outflow of economic benefits during a specific period,
resulting from the ordinary activities of an entity. They include costs incurred in generating revenue,
such as the cost of goods sold, employee salaries, rent, utilities, and depreciation of assets. Expenses
are recognized when there is a decrease in future economic benefits related to the entity's ongoing
operations, and they can be reliably measured.

The distinction between revenue and expenses is important for financial reporting purposes as they are
reported in the income statement, which shows the financial performance of an entity over a specific
period.

II. CURRENT VERSUS NON-CURRENT ASSETS:

Current assets are resources that are expected to be converted into cash or used up within one year or
the normal operating cycle of a business, whichever is longer. They include cash, cash equivalents,
accounts receivable, inventory, and short-term investments. Current assets are typically liquid and
readily available to meet the short-term obligations of the entity.

Non-current assets, also known as long-term assets or fixed assets, are resources that are expected to
provide economic benefits to the entity for more than one year. They include property, plant, and
equipment (PP&E), intangible assets, investments in subsidiaries, associates, and joint ventures, and
long-term investments. Non-current assets are not intended for sale or consumption in the normal
course of business operations and are expected to provide long-term value to the entity.

The classification of assets as current or non-current is important because it reflects the liquidity and
operating cycle of the business. Current assets are more readily available to meet short-term
obligations, while non-current assets represent a long-term investment in the entity's operations.

III. CURRENT VERSUS NON-CURRENT LIABILITIES:

Current liabilities are obligations that are expected to be settled within one year or the normal operating
cycle of the business, whichever is longer. They include accounts payable, accrued expenses, short-
term borrowings, and current portion of long-term debt. Current liabilities are typically settled using
current assets or by creating new current liabilities.

Non-current liabilities, also known as long-term liabilities, are obligations that are not expected to be
settled within one year or the normal operating cycle of the business. They include long-term
borrowings, deferred tax liabilities, pension obligations, and long-term lease obligations. Non-current
liabilities represent long-term financing or obligations that extend beyond the normal operating cycle
of the entity.

The classification of liabilities as current or non-current is important because it provides information

about the timing of settlement and the financial obligations of the entity. Current liabilities represent
short-term obligations that need to be met in the near future, while non-current liabilities indicate the
long-term financial commitments of the entity.

IV. TYPES OF EQUITY:

Equity represents the residual interest in the assets of an entity after deducting its liabilities. It
represents the ownership interest of the shareholders in a company and reflects the net assets available
to the owners. International Accounting Standards recognize different types of equity, which include:

Share capital: Share capital represents the initial investment made by the shareholders in exchange for
ownership shares of the company. It can be further classified into different types of shares, such as
common shares and preferred shares, each with different rights and privileges.

Retained earnings: Retained earnings represent the accumulated profits or losses of the company that
have not been distributed to the shareholders as dividends. It is the portion of the company's earnings
that is reinvested in the business to finance its growth and expansion.

Other reserves: Other reserves include various items that are not classified as share capital or retained
earnings. These reserves are created for specific purposes, such as the revaluation of assets, hedging
instruments, or foreign currency translation adjustments. Other reserves can be created voluntarily or
as required by accounting standards or regulations.

Treasury shares: Treasury shares represent shares of a company that have been repurchased by the
company itself. These shares are held as a form of investment by the company and are not considered
to be outstanding shares. They may be reissued or canceled at a later date.

Non-controlling interests: Non-controlling interests, also known as minority interests, represent the
portion of equity in a subsidiary that is not attributable to the parent company. Non-controlling interests
arise when a company holds less than 100% ownership in a subsidiary and reflect the ownership rights
of minority shareholders in the subsidiary.

The classification and disclosure of different types of equity are essential for understanding the
ownership structure and the distribution of financial resources among the various stakeholders of the
entity. It provides insights into the ownership rights, earnings retention, and distribution policies of the
company.

Understanding key terms in International Accounting Standards such as revenue versus expenses,
current versus non-current assets, current versus non-current liabilities, and types of equity is crucial
for financial reporting and analysis. These concepts help to differentiate between various elements of
an entity's financial statements, providing meaningful information about its financial performance,
liquidity, and capital structure.

Q.4 Th following information is available in respect of mechanics of Akmal Brothers:

(20)
i. The balances of cost and accumulate depreciation of mechanics as on
1 January 2017 were Rs. 800,000 and Rs. 333,000 respectively.
ii. A mechanics acquired on 1 January 2014 having net book value of Rs.
31,935 on 1 January 2017 was sold for Rs. 34,000 and 30 April 2017.
Cost of disposal incurred was Rs. 5,000.
iii. On 1 July 2017, a machine having fair value of Rs. 40,000 on that date
was exchange for a new machine. The balance of the purchase price
paid through a cheque of Rs. 80,000. Th e list of the new machine was
Rs. 130,000. The old machine had been acquired at a cost of Rs. 65,000 on 1 October 2015.
iv. Machines are depreciated at 15% per annum using the reducing balance method.

Required:
Prepare the following ledger account pertaining to the machines for the ended 31
December 2017:
Cost
Accumulated Depreciation
Gain/Loss on disposal

ANS:

To prepare the ledger accounts pertaining to the machines for the year ended 31 December 2017, we
need to consider the given information and perform the necessary calculations.

a. Cost Ledger Account:

The initial balance of the Cost of Mechanics on 1 January 2017 is given as Rs. 800,000.

Now, let's consider the transactions that affect the Cost of Mechanics during the year:

i. The machine with a net book value of Rs. 31,935 on 1 January 2017 was sold on 30 April 2017 for
Rs. 34,000. The cost of disposal incurred was Rs. 5,000.

To record this transaction, we will debit the Cost of Mechanics account with Rs. 31,935 (net book
value) and Rs. 5,000 (cost of disposal) and credit the Cost of Mechanics account with Rs. 34,000 (sale
proceeds).

The Cost of Mechanics account after this transaction will be as follows:

Cost of Mechanics:
Date | Particulars | Debit (Rs.) | Credit (Rs.)
1 Jan 2017 | Opening Balance | 800,000 |
30 Apr 2017 | Sale of machine | 31,935 |
| Cost of disposal | 5,000 |
| Proceeds from sale | | 34,000
ii. On 1 July 2017, a machine with a fair value of Rs. 40,000 was exchanged for a new machine. The
purchase price of the new machine was Rs. 130,000, of which Rs. 80,000 was paid through a cheque,
and the remaining amount will be recorded as a liability.

To record this transaction, we will debit the Cost of Mechanics account with Rs. 130,000 (purchase
price of new machine) and credit the Cost of Mechanics account with Rs. 40,000 (fair value of old
machine) and Rs. 80,000 (cheque payment).

The Cost of Mechanics account after this transaction will be as follows:

Cost of Mechanics:
Date | Particulars | Debit (Rs.) | Credit (Rs.)
1 Jan 2017 | Opening Balance | 800,000 |
30 Apr 2017 | Sale of machine | 31,935 |
| Cost of disposal | 5,000 |
| Proceeds from sale | | 34,000
1 Jul 2017 | Purchase of new machine | 130,000 |
| Fair value of old machine | | 40,000
| Cheque payment | | 80,000

b. Accumulated Depreciation Ledger Account:

The initial balance of Accumulated Depreciation of Mechanics on 1 January 2017 is given as Rs.
333,000.

Now, let's consider the transactions that affect the Accumulated Depreciation during the year:

i. The machine sold on 30 April 2017 had an accumulated depreciation of Rs. 31,935 on 1 January
2017.

To record this transaction, we will debit the Accumulated Depreciation account with Rs. 31,935.
The Accumulated Depreciation account after this transaction will be as follows:

Accumulated Depreciation:
Date | Particulars | Debit (Rs.) | Credit (Rs.)
1 Jan 2017 | Opening Balance | 333,000 |
30 Apr 2017 | Depreciation of sold machine | 31,935 |

ii. The new machine acquired on 1 July 2017 will start depreciating from that date.

To record the depreciation for the year, we need to calculate the depreciation expense. The machines
are depreciated at 15% per annum using the reducing balance method.

Depreciation expense for the year = 15% of (Cost of Mechanics - Accumulated Depreciation)

Depreciation expense = 15% of (Rs. 930,065 - Rs. 31,935) = 15% of Rs. 898,130 = Rs. 134,720.50

To record this transaction, we will debit the Depreciation Expense account with Rs. 134,720.50 and
credit the Accumulated Depreciation account with the same amount.

The Accumulated Depreciation account after this transaction will be as follows:

Accumulated Depreciation:
Date | Particulars | Debit (Rs.) | Credit (Rs.)
1 Jan 2017 | Opening Balance | 333,000 |
30 Apr 2017 | Depreciation of sold machine | 31,935 |
1 Jul 2017 | Depreciation expense | 134,720.50 |

c. Gain/Loss on Disposal Ledger Account:

To calculate the Gain/Loss on Disposal, we need to compare the proceeds from the sale of the machine
with its net book value.
Net Book Value = Cost of Mechanics - Accumulated Depreciation

i. The machine sold on 30 April 2017 had a net book value of Rs. 31,935 on 1 January 2017 and was
sold for Rs. 34,000.

To calculate the Gain/Loss on Disposal, we can subtract the net book value from the sale proceeds:

Gain/Loss on Disposal = Sale Proceeds - Net Book Value

= Rs. 34,000 - Rs. 31,935
= Rs. 2,065 (Gain)

To record this transaction, we will debit the Gain/Loss on Disposal account with Rs. 2,065.

The Gain/Loss on Disposal account after this transaction will be as follows:

Gain/Loss on Disposal:
Date | Particulars | Debit (Rs.) | Credit (Rs.)
30 Apr 2017 | Gain on disposal of machine | 2,065 |

Note: The ledger accounts provided above cover the transactions related to the machines for the year
ended 31 December 2017. Further calculations and adjustments may be required for subsequent years
and financial reporting.

Q.5 (a) IAS 10 describe some adjusted and non-adjusted events, explain
them. (10)
(b) Company a borrowed funds for the construction of manufacturing
plant at DG Khan of Rs. 150 million from MCB Bank dated 1-1-
2014 for 3 years period @ 12% pa. construction was completed 30th
June 2015. Surplus funds were invested @ 8% pa. (10)
 PAYAMNET SCHEDULE
2014 2015 2016
IST JANUARY 20 10
IST APRIL 25 25
IST JULY 30
IST OCTOBER 40
115 35

Required:
Calculate total interest over three years
Calculate investment income on surplus funds
Calculate borrowing cost to be capitalized over three years
Calculate cost of qualifying assets

ANS:

(A) IAS 10: ADJUSTED AND NON-ADJUSTED EVENTS

IAS 10, "Events after the Reporting Period," provides guidelines on how to handle events that occur
after the end of the reporting period but before the financial statements are authorized for issue. These
events are classified as either adjusted or non-adjusted events.

Adjusted Events:
Adjusted events are those that provide evidence of conditions that existed at the end of the reporting
period. They require adjustments to the financial statements. There are two types of adjusted events:
a) Adjustments Recognized in the Financial Statements:
If an adjusted event provides additional information about conditions that existed at the end of the
reporting period, it should be reflected in the financial statements. For example, if a customer dispute
arises after the reporting period but relates to sales made before the reporting period, the revenue and
any associated provision for bad debts should be adjusted.
B) DISCLOSURES IN THE NOTES:
In some cases, an adjusted event does not require adjustments to the financial statements but should
be disclosed in the notes to the financial statements. For example, if a major customer declares
bankruptcy after the reporting period, but before the financial statements are authorized for issue, it
may not require adjustments, but disclosure of this event is necessary to provide users of the financial
statements with relevant information.

Non-Adjusted Events:
Non-adjusted events are those that are indicative of conditions that arose after the reporting period.
They do not require adjustments to the financial statements but should be disclosed in the notes to the
financial statements if they are material and have a significant impact on the entity's financial position.
Non-adjusted events are further classified into two types:
A) Disclosed Events:
Non-adjusted events that do not affect the financial statements but are deemed important to the users
of the financial statements should be disclosed in the notes. These events could include significant
acquisitions or disposals of assets, the issuance or redemption of significant debt or equity instruments,
or changes in the entity's capital structure.

B) NON-DISCLOSED EVENTS:
Non-adjusted events that are not material and do not have a significant impact on the entity's financial
position are not required to be disclosed in the notes. These events may include minor business
transactions or events with minimal financial consequences.

Overall, IAS 10 aims to ensure that financial statements provide relevant and reliable information to
users by addressing the treatment of events that occur after the reporting period but before the financial
statements are authorized for issue.

(b) Calculation of Total Interest over Three Years, Investment Income on Surplus Funds, Borrowing
Cost to be Capitalized over Three Years, and Cost of Qualifying Assets:
To calculate the required figures, we need the interest rate, the principal amount, and the payment
schedule. Based on the given information, the loan amount is Rs. 150 million, the interest rate is 12%
per annum, and the construction was completed on June 30, 2015.

Calculation of Total Interest over Three Years:

To calculate the total interest over three years, we need to determine the interest for each period and
sum them up. The payment schedule provided is as follows:
2014:

January 1: Rs. 150 million * 12% * (1/365) * 20 = Rs. 98,630.14

April 1: Rs. 150 million * 12% * (91/365) * 25 = Rs. 916,438.36
2015:

January 1: Rs. 150 million * 12% * (1/365) * 10 = Rs. 32,876.71

April 1: Rs. 150 million * 12% * (91/365) * 25 = Rs. 916,438.36
June 30 (Construction Completion): Rs. 150 million * 12% * (181/365) * 35 = Rs. 1,238,493.15
Total Interest over Three Years = Rs. 98,630.14 + Rs. 916,438.36 + Rs. 32,876.71 + Rs. 916,438.36 +
Rs. 1,238,493.15 = Rs. 3,202,876.72

Calculation of Investment Income on Surplus Funds:

The surplus funds were invested at a rate of 8% per annum. To calculate the investment income on
surplus funds, we need to determine the interest for each period and sum them up. The payment
schedule provided is as follows:
2014:

January 1: Rs. 150 million - (20 + 10) = Rs. 150 million - 30 = Rs. 149,970,000
April 1: Rs. 149,970,000
July 1: Rs. 149,970,000
2015:

January 1: Rs. 149,970,000

April 1: Rs. 149,970,000
June 30 (Construction Completion): Rs. 149,970,000 + 115 = Rs. 150,085,000
2016:

January 1: Rs. 150,085,000

April 1: Rs. 150,085,000
Interest Income:

January 1, 2014, to April 1, 2014: Rs. 149,970,000 * 8% * (91/365) = Rs. 299,940

April 1, 2014, to July 1, 2014: Rs. 149,970,000 * 8% * (91/365) = Rs. 299,940
July 1, 2014, to January 1, 2015: Rs. 149,970,000 * 8% * (184/365) = Rs. 598,560
January 1, 2015, to April 1, 2015: Rs. 149,970,000 * 8% * (91/365) = Rs. 299,940
April 1, 2015, to June 30, 2015: Rs. 150,085,000 * 8% * (90/365) = Rs. 296,219.18
January 1, 2016, to April 1, 2016: Rs. 150,085,000 * 8% * (91/365) = Rs. 300,212.33
April 1, 2016, to June 30, 2016: Rs. 150,085,000 * 8% * (90/365) = Rs. 296,219.18
Total Investment Income on Surplus Funds = Rs. 299,940 + Rs. 299,940 + Rs. 598,560 + Rs. 299,940
+ Rs. 296,219.18 + Rs. 300,212.33 + Rs. 296,219.18 = Rs. 2,391,030.09

Calculation of Borrowing Cost to be Capitalized over Three Years:

To calculate the borrowing cost to be capitalized over three years, we need to determine the eligible
borrowing costs for each period and sum them up. The payment schedule provided is as follows:
2014:

January 1: Rs. 150 million * 12% * (1/365) * 20 = Rs. 98,630.14

April 1: Rs. 150 million * 12% * (91/365) * 25 = Rs. 916,438.36
2015:

January 1: Rs. 150 million * 12% * (1/365) * 10 = Rs. 32,876.71

April 1: Rs. 150 million * 12% * (91/365) * 25 = Rs. 916,438.36
June 30 (Construction Completion): Rs. 150 million * 12% * (181/365) * 35 = Rs. 1,238,493.15
Total Borrowing Cost to be Capitalized over Three Years = Rs. 98,630.14 + Rs. 916,438.36 + Rs.
32,876.71 + Rs. 916,438.36 + Rs. 1,238,493.15 = Rs. 3,202,876.72
Calculation of Cost of Qualifying Assets:
The cost of qualifying assets is the sum of the actual cost of the assets and the borrowing costs
capitalized. In this case, the actual cost of the assets is the construction cost of the manufacturing plant,
which is Rs. 150 million.
Cost of Qualifying Assets = Rs. 150 million + Rs. 3,202,876.72 = Rs. 3,352,876.72

In conclusion, the total interest over three years is Rs. 3,202,876.72, the investment income on surplus
funds is Rs. 2,391,030.09, the borrowing cost to be capitalized over three years is Rs. 3,202,876.72,
and the cost of qualifying assets is Rs. 3,352,876.72.