SWFT Comprehensive Volume 2019
42nd Edition
ISBN: 9780357233306
Author: Maloney
Publisher: Cengage
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Your client is in the planning phase for a major plant expansion, which will involve the construction of a new warehouse. The assistant controller does not believe that interest cost can be included in the cost of the warehouse, because it is a financing expense. Others on the planning team believe that some interest cost can be included in the cost of the warehouse, but no one could identify the specific authoritative guidance for this issue. Your supervisor asks you to research this issue.
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If your school has a subscription to the FASB Codification, log in and prepare responses to the following. Provide Codification references for your responses.
a. Is it permissible to capitalize interest into the cost of assets? Provide authoritative support for your answer.
b. What are the objectives for capitalizing interest?
c. Discuss which assets qualify for interest capitalization.
d. Is there a limit to the amount of interest that may be capitalized in a period?
e.…
Your city is expanding. There have been several problems with street flooding,which is affecting your business. You decide to attend a city councilmeeting, during which there is a discussion on building storm and sewerlines in advance of home construction. At the meeting, Tom Frank, thecity manager, states that the city is prohibited by law from financing theseprojects through a sales or property tax. He says that after the new homesare built, the city will be able to charge a monthly sewer fee to each homeownerand business. He asks for suggestions on financing the new sewersystem.a. What would you propose the city do to raise this money?b. Why is this investment vehicle attractive to investors?
The Dudumwezi city Council is a considering the introduction of speed trains in order to deal with the problem of traffic congestion in the city. The project will be implemented through the PPP model. Councilors are skeptical about the financial viability of the project and have asked for a financial viability assessment of the project. To this end the council management has engaged a consultant to carry out this assessment.
Required:To aid the Councilor’s, explain why it is important to carry out a cash flow analysis in project finance and the five factors that need to be considered when calculating cash flows.
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