- May 22, 2022 at 2:12 am #656149ilham9089Participant
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Leclerc Co has borrowed $2.4 million to finance the building of a factory. Construction is expected to
take two years. The loan was drawn down on 1 January 20X9 and work began on 1 March 20X9. $1
million of the loan was not utilised until 1 July 20X9 so Leclerc was able to invest it until needed.
Leclerc Co is paying 8% on the loan and can invest surplus funds at 6%.
Calculate the borrowing costs to be capitalised for the year ended 31 December 20X9 in respect of this project.
—–> My calculations were to calculate the borrowing costs on the 1.4m from March till 31 December and the 1m from 1 July to 31 December as it was invested from March till 31 June. I also calculated the investment income for the 1m and then netted off 0.13m (borrowing) – 0.02m (investment).
The answer in the back just took the borrowing cost of the whole 2.4m from March till December and then netted off the 1m investment from March to 31 JuneMay 30, 2022 at 4:12 pm #656857P2-D2Keymaster
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I believe that the answer given in the back is correct. We have borrowed the full $2.4m and the costs are capitalised from when the construction started. We then net off any money that is temporarily invested.
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