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Sir, supposing if the loan amount is fully drawn on 1 Jan and the work related to the qualifying asset starts in 31 March and some of the loan amount was deposited till 30 June, then would we deduct the investment income from Jan- June or Mar-June?
Thanks
Neither
Work started only at the END of March so the capitalisation would start only with effect from 1 April and investment income will be netted off the borrowing costs only with effect from that same date – 1 April
There was one MCQ where in the answer, the investment income was deducted from 1 Jan to 30 June.
Leclerc has borrowed $2.4 million to finance the building of a factory. Construction is expected to take two years. The loan was drawn down and incurred on 1 January 2009 and work began on 1 March 2009. $1 million of the loan was not utilised until 30 Jun 2009 so Leclerc was able to invest it until needed.
Leclerc is paying 8% on the loan and can invest surplus funds at 6%.
In this question they deduct investment income of 30,000 (1m * 6% * 6/12)
I think that BPP kit might have a misprint here. Thank you sir 🙂
I’m sticking with my original answer – the net off of the income from the temporary investment of surplus funds is available only from the date that capitalisation commences … and I’m very happy with that!
If BPP have a printing error / error of principle, that’s of no concern to me!
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