At the beginning of the current year, an entity borrowed P1,500,000 at an interest of 10%

specifically for the construction of a new building. The building was completed at current year-
end. The actual borrowing cost on this loan is P150,000.

Availments of the loan were made quarterly in equal amounts. Prior to their disbursement, the
proceeds of the borrowing were temporarily invested and earned interest income of P40,000.

Actual borrowing cost ( 150,000)

Less: interest income from investment of proceeds ( (40,000)
Capitalizable borrowing cost ( 110,000)
An entity had the following borrowings on January 1 of the current year. The
borrowings were made for general purpose and the proceeds were partly used to
finance the construction of a new building.

Principal Borrowing Costs

10% bank loan ( 3,000,000) ( 300,000)
12% short-term note ( 1,500,000) ( 180,000)
8% long-term loan ( 3,500,000) ( 280,000)
( 8,000,000) ( 760,000)

The construction of the building was started on January 1 and was

completed on December 31 of the current year.

January 1 ( 400,000)
March 31 ( 1,000,000)
June 30 ( 1,200,000)
September 30 ( 1,000,000)
December 31 ( 400,000)
Total expenditures on the building ( 4,000,000)

COMPUTATION:
Average carrying amount of the building
(a) (b) (a x b)
Date Expenditures Months Outstanding Amount
January 1 ( 400,000) 12 ( 4,800,000)
March 31 ( 1,000,000) 9 ( 9,000,000)
June 30 ( 1,200,000) 6 ( 7,200,000)
September 30 ( 1,000,000) 3 ( 3,000,000)
December 31 ( 400,000) 0 ( -  )
( 24,000,000)

Average carrying amount (24,000,000 / 12) ( 2,000,000)

Capitalization rate = 760,000 = 9.5%

8,000,000

Total capitalizable interest (2,000,000 x 9.5%) ( 190,000)

At the beginning of the current year, an entity borrowed P1,500,000
at an interest of 10% specifically for the construction of a new
building. The actual borrowing cost on this loan is P150,000.

The entity also had outstanding during the year, a 5-year 8% general
borrowing of P7,000,000.

The construction of the building started on January 1 and was

completed on December 31 of the current year.

January 1 ( 500,000)
April 1 ( 1,000,000)
May 1 ( 1,500,000)
September 1 ( 1,500,000)
December 31 ( 500,000)
Total expenditures on the building ( 5,000,000)

COMPUTATION:

(a) (b) (a x b)
Date Expenditures Fractions Amount
January 1 ( 500,000) 12/12 ( 500,000)
April 1 ( 1,000,000) 9/12 ( 750,000)
May 1 ( 1,500,000) 8/12 ( 1,000,000)
September 1 ( 1,500,000) 4/12 ( 500,000)
December 31 ( 500,000) 0.00 ( -  )
Average expenditures ( 2,750,000)

Average expenditures ( 2,750,000)

Specific borrowing ((1,500,000)
Applicable to general borrowing ( 1,250,000)

Capitalizable interest
Specific borrowing (10% x 1,500,000) ( 150,000)
General borrowing (8% x 1,250,000) ( 100,000)
Total capitalizable interest ( 250,000)