- February 11, 2020 at 2:59 am
I’m still confused of this and I need a clarification about the rules for capitalisation and some example to apply it.February 12, 2020 at 9:01 pm
Have you watched the videos and read the notes?
ThanksFebruary 23, 2020 at 9:17 am
Sire, i have a doubt regarding borrowing costs
Can you calculate the borrowing cost of following question.
“During the year to 31 December 20X3 Rablen decided to build a new head office. The total cost of
the project was $20 million, and in order to fund the construction Rablen received a $20 million
6% loan on 1 April 20X3.
Construction of the head office began on 1 May 20X3, and was completed on 30 November 20X3.
Rablen began to use the building on 1 January 20X4 and expected to use the building for the next
As not all of the funds were required immediately, Rablen invested $6 million of the loan in 5%
bonds from 1 April 20X3 to 1 July 20X3.”
Q)What is the correct treatment in relation to the income earned by Rablen on the 5%
A $75,000 should be deducted from the cost of the asset
B $75,000 should be recorded in investment income
C $300,000 should be deducted from the cost of the asset
D $300,000 should be recorded in investment income
The correct answer given in the book for the above question is A and i don’t get how, because the construction of the asset began in May, so the investment income earned that should be deducted from the capatalised borrowing cost should be of May and June, however they have included April also. The income earned in April should be recorded as investment income in SPL as the construction wasn’t started then.February 29, 2020 at 3:09 pm
I’m not here to just answer the question for you, it doesn’t assist your learning. You need to answer it yourself first and then ask specific questions where you do not understand something. I’ll then happily answer it for you.
You must be logged in to reply to this topic.