On January 1, 2020, Milestone Company was granted a loan of P2,000,000 at an interest rate of 10% specifically to finance

quarterly in equal amounts. Total borrowing costs amounted to P125,000. Prior to their disbursements, the proceeds of the
interest income amounting to P20,000. The building was completed on December 31 of the same year. Using the alternativ
costs?

Actual Borrowing cost 125 000

Interest Income (20 000)
105 000

Date Expenditures Fraction Average Borrowing cost

1-Jan 400 000 12/12 400 000 (288 000/4 000 000) 7.20%
Mar-31 1 000 000 09/12 750 000
Jun-31 1 200 000 6/12 600 000 2 000 000 * 7.2% 144 000
Sep-30 1 000 000 3/12 250 000
Dec-31 400 000 - -
2 000 000

Faith, Inc. has a fiscal year ending April 30. On May 1, 2020, Faith borrowed P10,000,000 at 15% to finance construction of
following completion of the building. During the year ended, April 30, 2021, expenditures for the partially completed structur
year. Interest earned on the unexpended portion of the loan amount to P400,000 for the year. How much should be shown
the alternative method?
Solution:
(6 000 000 / 2) 3 000 000
Multiply by 15%
450 000
 te of 10% specifically to finance the construction of its new building. Availments from the loan were made
ursements, the proceeds of the loan were temporarily placed in a special savings account and earned
same year. Using the alternative treatment, how much should Milestone Company capitalize as borrowing

t 15% to finance construction of its own building. Repayments of the loan are to commence on the month
the partially completed structure totaled 6,000,000. These expenditures were incurred evenly throughout the
r. How much should be shown as capitalized interest on Faith’s financial statements at April 20,2021 under