Solution-What amount of borrowing cost should be capitalized

What amount of borrowing cost should be capitalized

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Reference no: EM132788486

Ultimate Company decided to construct a tunnel that will link two sides of the village separated by a natural disaster. The tunnel would take two years to build and the total capital outlay needed for the construction would not be less than P20,000,000.

To allow itself a margin of safety, the entity borrowed P25,000,000 from three sources and used the extra P5,000,000 for working capital purposes.

Bank term loan 7% 5,000,000
Institutional borrowing 8% 10,000,000
Corporate bonds 9% 10,000,000

In the first phase of the construction of the tunnel, there were idle funds of P10,000,000 which the entity invested for a period of six months. Income from this investment was P500,000.

Problem 1: What amount of borrowing cost should be capitalized as cost of the asset?

a. 4,100,000
b. 3,280,000
c. 3,200,000
d. 2,780,000

Reference no: EM132788486

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What amount of borrowing cost should be capitalized

Reference no: EM132788486

Reference no: EM132788486

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