Borrowing Cost.

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September 17, 2018 at 8:49 am #474983
dalvi97
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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 500,000

The 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.
September 19, 2018 at 10:03 pm #475322
P2-D2
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Hi,

If you let me know the specific part of the answer that you do not understand then I can help you with it. I’m not prepared to answer the question completely when you have the answer in front of you.

Thanks
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