BPP MCQ -Q19 — OpenTuition Forums

Ssravani9y ago

Hello Sir Question is Leclerc borrowed 2.4 M to finance the building of a factory. Construction is expected to take 2yrs. The loan was drawn down and incurred on 01/01/09 and work began on 01/03/09. 1m of the loan was not utilised until 01/07/09 so Leclerc was able to invest it until needed. Leclerc was paying 8% on the loan and can invest at 6%. Calculate borrowing costs for year ended 31/12/09 in respect of this project. In the answer borrowing costs is calculated for 10 months. Is it because the project started in march even though the loan incurred form Jan? Thanks

MikeLittleTutor9y ago#1

Borrowing costs must be capitalised on the occasion of borrowing costs being incurred on a qualifying asset However, they are to be capitalised only whilst the qualifying asset is in progress so there's no capitalisation until the project / construction work has started OK?

Ssravani9y ago#2

Yes Sir.Thank you

MikeLittleTutor9y ago#3

You're welcome

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