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hello, following is the question
Acruni Co had the following loans in place at the beginning and end of 20X6.
1 Jan 20×6 31 dec 20×6
10% Bank loan repayable 20X8 120 `120
9.5% Bank loan repayable 20X9 80 80
8.9% debenture repayable 20X7 – 150The 8.9% debenture was issued to fund the construction of a qualifying asset (a piece of mining equipment), construction of which began on 1 July 20X6.
On 1 January 20X6, Acruni Co began construction of a qualifying asset, a piece of machinery for a hydro- electric plant, using existing borrowings. Expenditure drawn down for the construction was: $30m on
1 January 20X6, $20m on 1 October 20X6.Required
“Calculate the borrowing costs that can be capitalised for the hydro-electric plant machine”
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Could you explain why debenture is not involved in the calculation for the answer and why there’s no ending date specified on “required”?Thank you in advance
how to find the capitalisation rate and amount of interest that qyalifies of capitalisation?
minhnguyen@abc, the forums are primarily designed for students to help one another. If you want to ask the tutor directly, please use the ask the tutor forums.
Debenture represents SPECIFIC BORROWINGS as opposed to GENERAL BORROWINGS for the first two loans.
Also, specific borrowings are not used in determining capitalisation rates.
Lastly, the setter of the question made it easy for you by clarifying that the existing loans from the beginning of the year were used to fund construction of hydro electric plant. Debenture was not present at the start of the year as it has a nil (-) at start.
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