Reference no: EM13258325
Aftab Company limited realized itself as a social responsible company and decided to construct an employees housing society for its employees working in the company, which was destroyed by an earth quake few years ago in the region. It was estimated by construction expertsthat this project would take three years to complete and capital needed for the construction would not be less then Rs. 3 million. For the purpose of safety, the Aftab limited borrowed Rs. 3.4 million from different sources and usedthe extra 0.4 million forthe purpose of working capital needs.
Aftab Company Limitedborrowed the loans as the followings:
Loan from AmericanBank: Rs. 1 million at 7% per annum
Loan from MCB: Rs. 1.5million at 6% per annum
Loan from Mezaan Bank:0.9 million at 8% per annum
At the initial stageof the project, there were idle funds of Rs. 1 million which theAftab
Limited invested for aperiod of nine months. The income from this investment wasRs.
60,000.
If the Aftab limitedadopted Allowed alternative treatment then:
1. How the Aftab Company Limited would it treat the borrowing costs.
2. How would it capitalize the borrowing cost?
3. What would be thetreatment of the investment income?
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