Staedle (Pty) Ltd

Staedle (Pty) Ltd is a manufacturer of various stationery items. The company prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) and the current reporting date of Staedle (Pty) Ltd is 29 February 2024.

During the year ended 28 February 2022, Staedle (Pty) Ltd constructed a new manufacturing plant. Due to the specialised nature of the manufacturing plant, it took a significant period to complete, and it met the criteria of a qualifying asset in terms of IAS 23 Borrowing Costs.

The activities necessary to prepare the manufacturing plant for its intended use commenced on 1 March 2021 and was substantially completed on 31 August 2021. The manufacturing plant was only available for use as intended by management on 1 November 2021.

Total construction costs incurred by Staedle (Pty) Ltd in respect of the manufacturing plant amounted to R25 million. The construction costs were financed through a bank loan that was obtained specifically for the project on 1 March 2021. The bank loan bears interest at a market-related interest rate of 12% per annum, payable monthly in arrears. The capital of the loan is repayable in equal monthly instalments over 20 years, with the first payment on 31 March 2022.

The full amount of the bank loan was received in Staedle (Pty) Ltd’s bank account on 1 March 2022. Any funds not used for construction costs were temporarily invested in a money market account. Total investment income earned on the temporary investment of the loan funds was as follows:

·     1 March 2021 – 31 August 2021: R280 000

·     1 September 2021 – 31 October 2021: R93 500

The manufacturing plant is accounted for on the cost model of IAS 16 Property, Plant and Equipment. The plant is depreciated on a straight-line basis over an estimated useful life of 20 years, to an insignificant residual value.

During the audit of the financial statements of Staedle (Pty) Ltd for the year ended 29 February 2024, it was found that no borrowing costs were capitalised to the cost price of the manufacturing plant and that all interest costs in respect of the bank loan were recognised in profit or loss for the year ended 28 February 2022.

Source: Adapted from Smit, A. 2024.