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Leclerc has borrowed 2.4 million to finance the building of a factory. construction is expected to take two years. The loan was drawn down and incurred on 1st jan and work began on 1 march. 1 million of the loan was not utilized until 1 july so leclarc was able to invest it until needed.
In the revision kit answer they subtracted the interest earned for 6 months , whereas according to me until 1 march the construction did not begin so until 1 march, so then the interest earned should go to profit and loss and the interest earned from 1st march to 1st july should be subtracted from the interest to be capitalized
Agreed – I’ve been asked this question before. The examiner, when he last asked a borrowing cost question, specifically mentioned this very point in the examiner’s comments.
It is inconsistent to reduce the borrowing costs incurred by the investment income earned during a period when no borrowing costs are being capitalised
Ok?
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