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1jan 2006 X company borrowed 1.5m to finance two assets both of which are expected to take a year to build. Work started during 2006.the loan facility was drawn down and incurred on 1 jan 2006 and was utilised as follows with the remaninong funds invested temporarily.
1 Jan 2006 250.000. 500.000
1July 2006 250.000. 500.000
Loan rate was 9%and invest surplus at 7%.i dont understand why we calculate investment income with only the amount of 250.000 and finding only 6 months.whereas calculating loan we take 500.000 all and multiple it for full year (12 months)
Thanks for attentionIf you borrow $100 at an annual interest rate of 9% on 1 January, 2017 how much interest will you be charged in the year to 31 December, 2017
Answer $9
It doesn’t matter what you do with that $100 – it doesn’t even matter if you do nothing with that $100 – you will still be charged $9 interest for the year
Now, assume that you borrowed that $100 on 1 January, 2017 and invested $60 of it straight away because you didn’t need it for 5 months – that is on 1 June, 2017
So, you’ve borrowed $100 for 1 complete year at 9% costing $9
You’ve invested $60 for 5 months at an annual rate of 7% and earned $1.75
So the net position is capitalisable borrowing costs of $7.25
Now … apply those same principles to your $1,500,000 borrowing
And if you’re still struggling, post again
OK?
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