/* Style Definitions */
mso-padding-alt:0cm 5.4pt 0cm 5.4pt;
Lenny Ltd. started the construction of an asset on 1 January 2017 with a loan of £40,000 borrowed at an interest rate of 9% per annum.
The loan was used on the asset as follows
1 January, 2017
2 May, 2017
3 October, 2017
The construction of the asset was completed on 31 December 2017. However, during the accounting period Lenny Ltd. has invested the surplus funds at an interest rate of 3% on temporary basis before these were required for spending.
(a) The Borrowing Cost eligible for capitalization at 31.12.2017.
(b) The Cost of Asset to be reported in the statement of financial position at 31.12.2017
KLM had the following loans in place at the beginning and end of 20X1:
The bank loan at 6% p.a. was taken in July 20X1 to finance the construction of a new production hall (construction began on 1 March 20X1).
The bank loan at 8% p.a. and debenture stock were taken for no specific purpose and KLM used them to finance general spending and the construction of a new machinery.
KLM used £60 000 for the construction of the machinery on 1 February 20X1 and £25 000 on 1 September 20X1.
What borrowing cost should be capitalized for the new machinery?
Originally posted 2018-04-25 16:56:37.