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Hello Sir,
Borrow 2.4 million to finance the factory.Construction expected to take 2 years. The loan was drawn down on Jan 1st 2019, the work began on 1st March 2019. 1$ million of the loan was not utilized until 1 July 2019. Co pay 8% on the loan.==> Answer: The borrowing cost to be capitalized for the year ended 31 December 2019 in respect of this project is: (2.4m * 8% * 10/12)
My question because the 1m loan is not utilized until 1 July. So why we don’t capitalize 1.4m for 10 months (Mar-Dec) and expense 1m for 4 months (Mar-June) and capitalize 1m for 6 months (July-Dec)?Thank you in advance!!!!
Hi,
Where did you get the question/answer from? The borrowing costs are only capitalised once the borrowings are used for the construction. The borrowings are not used until 1 July 2019 and so capitalisation on that amount would only start then, with the rest being expensed through profit or loss.
Thanks
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