Borrowing cost

Frederico, you ask "Had there been no Investment of idle funds, we then would have had to allocate funds proportionately right?" and here's a re-post of part of my previous response: "So borrowing costs capitalised will be: 9% x $1.5 million x 12/12 = $135,000 less 7% x $750,000 x 6/12 = $26,250 giving an aggregate of $108,750 and that’s split $36,250 for asset A and $72,500 for asset B" This figure above of $36,250 for asset A is made up of: 500/1,500 x $135,000 total capitalised borrowing cost = $45,000 less 500/1,500 x $26,250 interest earned on temporary investment = $8,750 giving us an aggregate figure of $45,000 - $8,750 = $36,250 So, you see, I HAVE apportioned both the borrowing costs and the interest earned by taking 500/1,500 of the borrowing costs figure and 500/1,500 of the interest earned figure Is that better?

What's the name of the question? I thought the only example was Edigijus and there's no concept of apportionment in that question!

"The solution of that question actually accounts for only relevant periods" Thank Heavens for that! So it looks like I did it correctly then! When you borrow money to spend on a project, you borrow money! And the bank will start charging interest on that borrowing from the very first day that you borrow the money The bank is totally uninterested in when you start the project nor even whether you start the project. You will start paying interest as soon as the bank puts that borrowing at your disposal But for accounting terms, the interest payable on those borrowings is to be capitalised but only during relevant periods - ie those periods where the project is actually started and being worked on but not those periods where work is suspended because of, for example, snow The capitalisation of the interest ceases when the project is substantially complete - but who is going to decide "substantially"? When you have those borrowings in your account under your control, you then start to spend that money on the project and that means that you are incurring costs on the project. And if you are incurring costs then the suppliers of the materials and the workforce supplying their labour will expect to be paid for those services and that labour As for your question "How do we treat them?" surely that's covered in the lecture and in the worked example of Edigijus Better?

You're welcome