[Tami]

I’ve attempted the question and the information is there for the SOPL and SOFP in the answer

[Tami]

Orinoco borrowed $3m at 9% to finance construction of a factory on 1 May 20X7. Work on the project began on 1 June 20X7. $1m of the loan was not required to be spent until 1 September 20X7, so was reinvested until then at 7%.

What amount of borrowing costs should be capitalised for the year to 31 December 20X7?

A.$140,000

B.$156,667

C.$157,500 (This is the Answer)

D.$180,000

Loan – $3,000,000
Effective Interest rate – 9%
Start of construction – 1 June 20×7
Year ending – 31 Dec 20×7
Borrowing cost capitalization – 9 months

annual loan interest ($3,000,000 x 9%) = $270,000
loan interest expensed (5/12 x $270,000) = $112,500
Borrowing cost capitalization = $157,500

Hopefully a tutor can confirmed that i am correct……

[Author]

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