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How much interest can be capitalised in ppe as a result

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An entity capitalises borrowing costs on the construction of property, plant and equipment (PPE). On 1 July 2015, the entity purchased land for the construction of a new factory and borrowed £10 million at 9% annual interest on that date to finance the construction. Construction commenced on 1 August 2015, and the factory was completed and ready for use on 1 March 2016. Production started in the factory on 1 May 2016.

Problem 1: How much interest can be capitalised in PPE as a result of this construction in the year ended 30 June 2016?

Reference no: EM132769793

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