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Borrowing Cost
Borrowing Cost
Construction is
expected to take two years. The loan was drawn down and incurred on 1 January 20X9 and
work began on 1 March 20X9. $1 million of the loan was not utilised until 1 July 20X9 so
Leclerc was able to invest it until needed. Leclerc is paying 8% on the loan and can invest
surplus funds at 6%.
Calculate the borrowing costs to be capitalised for the year ended 31 December 20X9 in
respect of this project.
2. A company has the following loans in place throughout the year ended 31 December
20X8.
10% bank loan: 140 m
8% bank loan: 200m
On 1 July 20X8 $50 million was drawn down for construction of a qualifying asset which was
completed during 20X9.
What amount should be capitalised as borrowing costs on 31 December 20X8 in respect of
this asset?
4. A company has the following general borrowings outstanding throughout the whole of an
accounting year: 6.5% Bank loan of £400,000 8% Bank loan of £800,000 If a qualifying asset
costing £50,000 is funded out of these general borrowings, the capitalisation rate that should
be used is:
Big Group is constructing an office building and is capitalising borrowing costs in accordance
with IAS 23 – Borrowing Costs. The office is almost complete; the only remaining work is to
install furniture.
Is Big Group allowed to continue capitalising the borrowing costs?