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On 1 Jan 2016 X co. borrowed $1.5m to finance the production of two assets, both of which were expected to take a year to build. work started during 2016. The loan facility was drawn down and incurred on 1 Jan 2016, and was utilized as follows, with the remaining funds invested temporarily.
1 Jan 2016 ….. Asset A 250,000 ; Asset B 500,000
1 July 2016……Asset A 500,000 ; Asset B 500,000The loan rate was 9% and X Co. can invest surplus funds at 7%.
Required
Ignore compound interest. Calculate borrowing costs which may be captitalised for each of the assets and consequently the cost of each asset as at 31 Dec 2016.Sir, I have the answer in the book but I do not understand the working. Can you please explain it step by step in detail? Thank you.
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