Reference no: EM132724953

Question - GCQ Company had the following transactions related to its PPE for the year 2020.

1) On January 1 GCQ signed a fixed-price contract to have MGCQ Associates construct a plant facility at a cost of P4,000,000. It was estimated that it would take 3 years to complete the project. Also on Jan. 1, to finance the construction, GCQ borrowed P4,000,000 payable in 10 annual installments of P400,000, plus interest at the rate of 10%. During 2020, GCQ made deposits and progress payments totaling P1,500,000 under the contract; weighted average amount of accumulated expenditures was P900,000 for the year. The excess borrowed funds were investment in short-term securities from which the company realized an investment income of P50,000.

2) In the same year, GCQ also constructed other assets that required an extended period of time for completion and incurred the following interest cost on specific borrowings for every assets as follows:

Interest cost

Construction of warehouse P30,000

Special-order machine for sale to unrelated customer, produced according to customer's specifications P9,000

Inventories routinely manufactured, produced on a repetitive basis P8,000

3) Also on Jan 1, GCQ borrowed P10,000,000 at 11% to finance the construction of another building for its own use. Repayments of the loan are to commence the month following the completion of the building. At the end of the year, the expenditures for the partially completed building totaled P6,000,000. These expenditures were incurred evenly throughout the year. Interest earned on the unexpended portion of the loan amounted to P150,000 for the year. Determine the total borrowing cost capitalized by GCQ Company for the year 2020.