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Hello, i have a question regarding the borrowing cost.how it was calculated? the first line under Spent column you put $50M, why? is not mentioned anywhere at 1 January 2008 Edijius has spent that money, Just in february the amount of 30M. I would like to have details or formula for that calculation (column Invested and Spent) for the first 2 lines. Thanks in advance.
Well, if he borrowed $100m and invested $50m, what did he do with the $50m he didn’t invest?
I was listening to the lecture on borrowing cost.
in the investment column, the amount spend on 31st may is 60m and is deducted from investment column. it was not withdrawal. in the example questions, only once they are withdrawing , but in the lecture it is 2 times. in other words, in the investment table, there is a movement, 90m , 30m and then again 90m. that part i didnt understand.ok, the 60m spent on 31 May – where did that come from? Presumably you’ll accept that it came out of the 90m which was in investment at that date. So, having taken the 60m out, and spent it, now there is only 30m left invested.
On 31 August, he borrows another 80m and spends 20m straight away. What do you think he did with the other 60m? I suggest that he probably invested it together with the 30m already invested, so now his investment is back up to 90m
Is that clearer?
if we draw of column the cash in hand,
then it would be like
1st jan- 50m
28 th feb, 80m
1st april, 130m
31st may, 70 m. here he spend 60m. when he has 130m in hand and 90m in investment. should he then withdrew money from investment, unless specifically stated?WHAT????
1 Jan, he borrows 100 from the bank, puts 50 on deposit and spends 50 on construction. 28 feb, he takes 30 out of deposit account and spends it on construction, so now there’s only 20 left in deposit account. Then he gets another 120 from the bank and spends 50 on construction. The other 70 recently received from the bank he puts into the deposit account with the existing 20, so now there is 90 invested in the deposit account. On 31 May, he takes 60 out of deposit and spends it on construction, so now there’s only 30 left on deposit account. On 31 August he takes the last 80 out of the bank, so now he has borrowed all 300. Of the 80 he’s just taken from the bank, he spends 20 straight away and puts the other 60 into the deposit account which is now up to 90 again. Then on 1 January, he takes all 90 out of the deposit acount and spends it on construction.
There, is that clear now? I hadn’t realised it was complicated and still don’t see what the problem is!
yes. that is clear now.
i didnt check the solution given in the notes. then i shouldnt have this doubt.
one little doubt left.
so, net borrowing cost is finance cost minus investment income.300m is expenditure on asset and
capitalised asset is expenditure on asset plus net borrowing cost.
or
borrowing cost is expenditure on asset plus finance cost minus investment incomenow, how can borrowing cost include the 300 million? The borrowing cost is ….the cost of borrowing! Interest, as calculated less interest income.
And as for posting a question on the forum and then admitting that you hadn’t checked out the answer ….. well! I’m speechless. It’s as though you think I have nothing better to do with my time! PLEASE, do us a favour and try to check out the problem before you post. Please
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