whitebirk kaplan

“Whitebirk requires a new machine, which will be included as part of its property, plant and equipment. Whitebirk therefore commenced construction of the machine on 1 February 20X6, and this continued until its completion which was after the year end of 31 May 20X6. The direct costs were $2 million in February 2016 and then $1 million in each subsequent month until the year end. Whitebirk has incurred finance costs on its general borrowings during the period, which could have been avoided if the machine had not been constructed. Whitebirk has calculated that the weighted average cost of borrowings for the period 1 February – 31 May 20X6 on an annualised basis amounted to 9% per annum.”

ans as per kaplan exam kit: “The weighted-average carrying amount of the machine during the period is $3.5 million ($2m + $3m + $4m + $5m) / 4).” after capitalisation this amounts to $0.1 million ($3.5 million × 9% × 4/12), $3.6m.

sir what is this???? i can’t understand it.

clearly the amount that should have been capitalised was= 2+1+1+1=$5mx(1+9%x4/12)=$5.15m ($2m for feb and then for each of the remaining 3months $1m each)