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Help with capitalised borrow cost

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Help with capitalised borrow cost

  • This topic has 5 replies, 2 voices, and was last updated 10 years ago by MikeLittle.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • May 19, 2015 at 11:38 am #247144
    mysoul
    Member
    • Topics: 28
    • Replies: 30
    • ☆☆

    Q3 of Bpp kit.
    capita had the following outstanding during the whole of 2008

    9% loan repayable 2009 $15m
    11% loan repayable 2012 $ 24m
    Capita began construction of a qualifying asset on 1 april 2008 and withdrew funds of $6 millions on that date to fund construction. on 1st august an additional $2m was withdrawn for the same purpose.
    Question> Calculate the borrowing cost which can be capitalised in respect of this project for the year ended 31 dec 2008.
    Please sir help me understand this question and how to go about solving it.

    thank you for always being there for us.

    May 19, 2015 at 6:13 pm #247222
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23323
    • ☆☆☆☆☆

    Before I tell you how to get there, please confirm the figure is 545,556!

    May 20, 2015 at 8:44 am #247312
    mysoul
    Member
    • Topics: 28
    • Replies: 30
    • ☆☆

    Good morning Sir Mike,
    Bpp answer is $ 560,000.

    May 20, 2015 at 10:07 am #247363
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23323
    • ☆☆☆☆☆

    I still get $545,556 (ish)

    Total interest for the year is 9% x $15,000,000 + 11% x $24,000,000 = $3,990,000

    For $6,000,000 draw down for 9 months it’s $3,990,000 / 12 x 9 / 39 x 6 = $460,385

    For $2,000,000 draw down for 5 months it’s $3,990,000 / 12 x 5 / 39 x 2 = $85,256

    Added together that $545,641

    Does BPP not give you any workings?

    May 21, 2015 at 8:20 am #247529
    mysoul
    Member
    • Topics: 28
    • Replies: 30
    • ☆☆

    Sir Mike
    Good morning,
    Bpp workings.

    Total loan= $15+$24= 39.
    therefore… (9%x15/39)+(11%x24/39)=10.5%
    SO, 10.5%X$6000,000X9/12=47250
    10.5%X2000,000 X 5/12=8750

    = 47250+8750=$560,000

    Thank for your working. leaning a new approach.

    May 21, 2015 at 8:36 am #247532
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23323
    • ☆☆☆☆☆

    No, no, I like the BPP way. I weighted the interest cost but my way was very crude. To calculate 9% on 15/39 of the total loan and 11% on 24/39 of the total loan is a better way. Hats off to BPP

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