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Reference to practical question no. 2 in open tuition.
Borrowed 2.4m on 1/5/14
construction started on 30/6/14
Out of 2.4, 1m not required which is invested till 1/11/14.
Borrowing cost 8%, Investment cost 6%This the way I did it:
1.4m x 8% x 10/12=93,333
1m x 8% x 6/12=40,000Less
1m x 6% x 4/12=20,000In the correct answer they have provided interest for 10 months for full 2.4m.
Sir,
Out of 2.4m, 1m is invested only in November. So aren’t we suppose to provide interest for 6 months for 1m and 10 months for 1.4m?
How much did you borrow?
What’s the bank going to say when you tell them that you’re not going to pay them any interest on that $1 million because, even though you’ve borrowed it, you don’t need it just yet?
If they agree with you, can you please let me know the name of your bank!
Sir,
I have one more doubt in the same topic.
while calculating months for investment income, should we consider the months from the date the loan was taken or from the date work commenced?In the revision kit, they have taken from the date loan was drawn but in Open tuition question they have taken from the date work commenced.
In the exam question from a few years back, the examiner calculated the investment income for the period that we were capitalising the borrowing costs
OK?
Does that mean we should calculate investment income when work commenced after the loan is drawn?
We calculate the investment income earned during the exact same period during which the borrowing costs are capitalised
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