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ACC 107. Chapter 19
ACC 107. Chapter 19
Chapter 19
Borrowing Costs
6. Solution:
The average expenditures are computed as follows:
Mos.
Date Expenditures Average
Outstanding
1/1/x1 1,500,000 12/12 1,500,000
6/1/x1 600,000 7/12 350,000
11/30/x1 300,000 1/12 25,000
Totals 2,400,000 1,875,000
Actual = 380,000
7. Solutions:
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Fraction
of the Year Capitalized
Expenditure Date Amount Outstanding Interest
January 2, 2002 ₱500,000 12/12 ₱500,000
May 1, 2002 500,000 8/12 333,333
November 1, 2002 400,000 2/12 66,667
Total weighted average expenditures for 2002 ₱900,000
Specific Borrowing:
Interest expense on specific borrowing (800K x 12%) 96,000
Less: Investment income earned on specific borrowing ( - )
Borrowing cost from specific borrowing 96,000
General Borrowing:
Average expenditures 900,000
Less: Specific borrowing ( 800,000)
Expenditures financed by general borrowing 100,000
Multiply by capitalization rate 8.62%
Borrowing cost from general borrowing 8,620
Total 104,620
Specific Borrowing:
Interest expense on specific borrowing (800K x 12%) 96,000
Less: Investment income earned on specific borrowing ( - )
Borrowing cost from specific borrowing 96,000
2
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General Borrowing:
Average expenditure 200,000
Multiply by: Capitalization rate (see req’mt. a) 8.62%
Borrowing cost from general borrowing 17,240
Total 113,240
8. C
3
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PROBLEM 3: EXERCISES
1. Solution:
(1M x 5% x 7/12*) – (800,000 x 2% x 2/12) = 26,500
*Although the funds were withdrawn on 1st May, the capitalization can start
only on 1st June 20X1 when all criteria were met (the construction had not
started until 1st June).
2. Solution:
Capitalization rate = [(12% x 8.4M) + (8% x 1.8M)] ÷ (8.4M + 1.8M) =
(1,152,000 ÷ 10,200,000) = 11.29%
3. Solution:
The expenditures are allocated to specific and general borrowings. The
amounts allocated to general borrowings are averaged.
Expenditure Specifi Genera Mos. Averag
Date
s c l Outstanding e
200,00
7/1/06 200,000
0 N/A
500,00 100,00
9/30/06 600,000 75,000
0 0 N/A; 9/12
3/31/07 1,200,000 1,200,000 3/12 300,000
200,00
6/30/07 200,000
0 0/12 -
700,00 1,500,00
Totals 2,200,000
0 0 375,000
Specific Borrowing:
Interest expense on specific borrowing (given) 65,000
Less: Investment income earned on specific borrowing ( 20,000)
Borrowing cost from specific borrowing 45,000
General Borrowing:
Average expenditures 375,000
Multiply by capitalization rate 11%
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4. Solution:
The expenditures are allocated to specific and general borrowings. The
amounts allocated to general borrowings are averaged.
Expenditure Mos.
Date Specific General Average
s Outstanding
1/1/09 6,000,000 6,000,000 - N/A
3,000,00
8/1/09 3,000,000 - 5/12 1,250,000
0
12/31/0 1,000,00
1,000,000 - 0/12 -
9 0
6,000,00 4,000,00
Totals 10,000,000 1,250,000
0 0
Specific Borrowing:
Interest expense on specific borrowing (6M x 9%) 540,000
Less: Investment income earned on specific borrowing ( - )
Borrowing cost from specific borrowing 540,000
General Borrowing:
Average expenditure 1,250,000
Multiply by capitalization rate 11%
Borrowing cost from general borrowing 137,500
Borrowing cost eligible for capitalization 677,500
5. Solution:
The capitalization rate is computed as follows:
(130,000 x 8%) + (50,000 x 5.5%) ÷ (130,000 + 50,000) = (13,150 ÷
180,000) = 7.31%
5
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6
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Plus points to the learner who went the extra mile and
placed a description for the table.
7
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3. C
Solution:
Interest costs incurred on warehouse constructed for Belardo's
own use 20,000
Special-order machine for sale to unrelated customer,
produced
according to customer's specifications 9,000
29,00
Capitalized interest
0
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