Determine the borrowing costs to be capitalized

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Question - Gamma Ltd. (GL) signed a contract on 29 September 2022 for the $200 construction of a state-of-the art distribution center for the company's Atlantic region. Gamma has a 31 December fiscal year end. On 30 September, GL borrowed $120 from the bank at a rate of 10% to finance the first part of the construction. GL paid the contractor $40 on 30 September and $50 on 2 December 2022, investing the excess funds in short-term securities. As of 31 December 2022, GL earned $0.20 interest on the excess funds.

Required -

(a) Determine the borrowing costs to be capitalized for GL's year ended 31 December 2022.

(b) If GL had paid the bank a fee of $3 on 30 September to enter into the loan agreement, how would this affect your calculation in part (a), if at all?

Reference no: EM133150273

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