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Calculate the borrowing costs which may be capitalized

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On January, 2006 Bonas Co. borrowed GH¢15 million to finance the production of two assets, both of which were expected to take a year to build. Production started during 2008. The loan facility was drawn down on 1st January 2008 and was utilized as follows, with the remaining funds invested temporarily.

                          ???? Asset X     Asset Y

?1st Jan. 2008 GH¢2.5m     GH¢5m

?1st July, 2008 ?? GH¢2.5m     ?GH¢5m

  • The loan rate was 10% and Bonas Co can invest surplus funds at 8%.

Required:

Question 1: Ignoring compound interest, calculate the borrowing costs which may be capitalized for each of the assets and consequently the cost of each asset as at 31st December, 2008

Reference no: EM132499628

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