An entity already has a number of general loan arrangements: Loan 1 of RM800,000, interest paid at 9%; Loan 2 of RM2 million, interest paid at 8%; and Loan 3 of RM400,000, interest paid at 7.5%. The entity has commissioned a new printing press to be constructed on its behalf. The total cost will be RM800,000 and the entity will be able to fund the purchase from its existing borrowings since it has arranged for stage payments to be made. The construction takes six months. i) Calculate the capitalization rate (ii) Calculate the total cost of the printing press (iii) Define a ‘qualifying asset’ and discuss the criteria to be fulfilled for eligibility to capitalize borrowing cost incurred for qualifying asset.
An entity already has a number of general loan arrangements: Loan 1 of RM800,000, interest paid at 9%; Loan 2 of RM2 million, interest paid at 8%; and Loan 3 of RM400,000, interest paid at 7.5%. The entity has commissioned a new printing press to be constructed on its behalf. The total cost will be RM800,000 and the entity will be able to fund the purchase from its existing borrowings since it has arranged for stage payments to be made. The construction takes six months. i) Calculate the capitalization rate (ii) Calculate the total cost of the printing press (iii) Define a ‘qualifying asset’ and discuss the criteria to be fulfilled for eligibility to capitalize borrowing cost incurred for qualifying asset.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
An entity already has a number of general loan arrangements:
Loan 1 of RM800,000, interest paid at 9%;
Loan 2 of RM2 million, interest paid at 8%; and
Loan 3 of RM400,000, interest paid at 7.5%.
The entity has commissioned a new printing press to be constructed on its behalf. The total cost will be RM800,000 and the entity will be able to fund the purchase from its existing borrowings since it has arranged for stage payments to be made. The construction takes six months.
i) Calculate the capitalization rate
(ii) Calculate the total cost of the printing press
(iii) Define a ‘qualifying asset’ and discuss the criteria to be fulfilled for eligibility to capitalize borrowing cost incurred for qualifying asset.
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