Hello. I just want to clarify that part of the question saying that they used $10m as expenditure on 1 jan and then for 1 july they used $15m as expenditure. Are these separate expenditures? that means they’re also separate loans issued by Venezuela? bcoz you applied the interest rate for the $10m for the WHOLE YEAR while HALF OF THE YEAR for the $15m. I just got confused bcoz what I did before seeing your solution was I time apportioned the $10m interest for 6 months as well, believing that that fund was just for jan-june only and then the rest will be for the $15m. I hope you will clarify this thank you

Yes, they are two separate amounts that have been spent and therefore capitalised from those dates. The $10 million will have been for the full 12 months, whilst the additional $15 million will be for the final 6 months of the year.

I know this question can read in different ways however you have to look at it from the point of view that it is a qualifying asset over a “PERIOD OF CONSTRUCTION” therefore if no end date for construction is given than you need to capitalised over the remaining month(s).

Is the answer to this example correct? Your answer is $0.59m. This is broken down to ($10m x 3.38%) + ($15m x 3.38% x 6/12). $10m x 3.38% is equal to $0.38m. $15m x 3.38% x 6/12 is equal to $0.285m; giving $0.665m.Am I going wrong somewhere?

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noumanbt says

Hi… sir what about the 1 month of june… why didn’t we capitalise that too?

Ambuj11 says

Thanks

ogwo says

Goodpm, I believe the correct answer to the above question is $5.915m or $5,915,000

fgnhgn says

correct me if I am wrong the remaining non-capitalised interest of 1.61m (2.2-0.59) will be shown in the income statement as an expense?

P2-D2 says

Yes, correct. Anything not capitalised is expensed through profit or loss.

vavneetb says

Hi

Why did you take full one year interest on the month of January , on $10 million?

alieahsj01 says

Hello. I just want to clarify that part of the question saying that they used $10m as expenditure on 1 jan and then for 1 july they used $15m as expenditure. Are these separate expenditures? that means they’re also separate loans issued by Venezuela? bcoz you applied the interest rate for the $10m for the WHOLE YEAR while HALF OF THE YEAR for the $15m. I just got confused bcoz what I did before seeing your solution was I time apportioned the $10m interest for 6 months as well, believing that that fund was just for jan-june only and then the rest will be for the $15m. I hope you will clarify this thank you

P2-D2 says

Hi,

Yes, they are two separate amounts that have been spent and therefore capitalised from those dates. The $10 million will have been for the full 12 months, whilst the additional $15 million will be for the final 6 months of the year.

Thanks

vavneetb says

But it doesn’t say anywhere in question clearly that they spent $10 million for full one year?

johncrotty says

I know this question can read in different ways however you have to look at it from the point of view that it is a qualifying asset over a “PERIOD OF CONSTRUCTION” therefore if no end date for construction is given than you need to capitalised over the remaining month(s).

hope this helps

abby98 says

Is the answer to this example correct? Your answer is $0.59m. This is broken down to ($10m x 3.38%) + ($15m x 3.38% x 6/12). $10m x 3.38% is equal to $0.38m. $15m x 3.38% x 6/12 is equal to $0.285m; giving $0.665m.Am I going wrong somewhere?

alieahsj01 says

$10m x 3.38% = $338,000

+

$15m × 3.38% = $507,000 × 6/12 = $253,500

$338,000 + $253,500 = $591,500

or $0.59m