Question

day020 Interest Capitalization preassignment Layout References Mailings Review View Share Com AaBbce Scab AaBbc * A2-A EDEA Delmar Corporation borrowed $500,000 at 12% interest from State Bank on March 1, 2019, for specific purposes of constructing special purpose equipment to be used in its operations Construction on the equipment began on 3/1/19, and the following expenditures were made prior to the project's completion on Dec. 31, 2019: 4/30 11/1 12/31 $100,000 150,000 300,000 100,000 Delmar had no other existing debt. 1. Calculate the weighted-average accumulated expenditures for 2019. 2. What amount of interest should be capitalized for 2019? MacBook Air G 4659 10

Answer 1

	This question is based on the concepts of IAS 23 " Borrowing Cost"
1	Calculation of weighted average accumulated expenditure
	Payment Date	Expenditure (1) (in $)	Period of Capitalization (2)	Weight (3)= (2)/12	Weighted expenditure = (1)*(3)
	3/1/2019	1,00,000	10	0.83	83,333.33
	4/30/2019	1,50,000	8	0.67	1,00,000.00
	11/1/2019	3,00,000	2	0.17	50,000.00
	12/31/2019	1,00,000	0	0.00	-
					2,33,333.33
2	The above weighted average expenditure is fully financed through specific borrowings of $ 500,000
	So, the rate of interest will be the rate at which specific borrowings have been taken from State Bank.
	Therefore, ROI is 12%
	Weighted average borrowing rate=Sum of(Amount borrowed/Total borrowings *ROI)
		=	500000/500000*12%
		=	12.00%
	Amount of interest to be capitalised=		12%*2,33,333.33
		=	28000.00