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Leclerc has borrowed $2.4 million to finance the buliding of a factory.Construction is expected to take two years.The loan drawn down and incurred on 1 january 2009 and work began on 1 march 2009 .1 million of the loan was not utilised until 1 july 2009 so leclerc was able to invest it until needed.
Leclerc is paying 8%on the loan and can invest surplus fund at 6%.
Calculate the borrowing costs to be capitalised for the year ended 31 december 2009 in respect of this project.
Can u tell me when is the interest income received for what month and why is it:
2400*0.08*10/12 -1000*0.06*6/12?why not 2400*0.08*10/12 -1000*0.06*4/12 (1 mar-30 jun)?
thank you !
My figures are $160,000 – $20,000
I believe that you are quoting from an answer from the revision kit of one of the approved publishers and, I’m sorry to say, I firmly believe that their answer is incorrect
We are allowed to reduce the amount capitalised by the interest earned on the investment of temporary surplus funds for the same period during which borrowing costs are being capitalised
So I agree with you “why not 2400*0.08*10/12 -1000*0.06*4/12 (1 mar-30 jun)?”
OK
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