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Explain whether the policy put forward by the directors

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Reference no: EM132740273

Marley Limited prepares its financial statements to 31 December each year, and three issues need to be resolved before the financial statements for the year ended 31 December 2012 can be finalised.

Issue 1:

  • On 1 January 2012, Marley Limited entered into a contract with a building company to build new administrative offices for the company at a cost of £10,000,000. In order to finance the cost of the contract, Marley Limited entered into a short-term loan agreement with its bankers to borrow £10,000,000 at an interest rate of 6% per annum for the year that it would take to build the offices. The construction of the offices was completed on 31 December 2012 and the loan was repaid on the same date. As Marley Limited's profits for the year ended 31 December 2012 are higher than expected, the directors of Marley Limited wish to expense the loan interest paid during 2012.

Requirement

Problem 1: Explain whether the policy put forward by the directors of Marley Limited is acceptable.

Reference no: EM132740273

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