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Sir how do we calculate the capitalisation rate(weighted average rate) for borrowing costs?
It will be done for you in the exam. I’ve never had to do the exercise in practice, neither as an accountant nor check / assess it as an auditor.
The topic arises where a company has funds borrowed generally and uses some specifically to finance a development / construction project. I imagine the weighted average amount is calculated by applying the fraction to the total borrowing costs as follows:-
Amount spent on project / Total amount of borrowing
That fraction will change each time the amount spent on the project increases and will also change with each movement in the amounts borrowed.
That’s why your examiner will give you percentages and dates!
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