Question

On January 1, 2016, the Shagri Company began construction on a new manufacturing facility for its own use. The building was completed in 2017. The only interest-bearing debt the company had outstanding during 2016 was long-term bonds with a book value of $10,000,000 and an effective interest rate of 8%. Construction expenditures incurred during 2016 were as follows:
January 1

$500,000

March 1

600,000

July 31

480,000

September 30

600,000

December 31

300,000

Required:

Calculate the amount of interest capitalized for 2016.

Answer 1

Answer:

Explanation:

this is borrowing cost that should be capitalized under IAS-23, interest cost will be capitalized from the date of occurance.  we will darw the table to identify the cost of capital.

assuming that bonds were issued for the construction of loan

Date Amount      Rate   Outstnding period            Interest Expense

1-Jan      10000000    8%                 12 moths                        800000