Arcana Company self-constructed an asset for its own use. Construction stated on January 1, 2017 and the asset was completed on December 31, 2017. The company had a two-year, 18% loan of P500,000, specifically obtained to finance the asset construction. Funds not yet needed during the construction were temporarily invested in a short-term debt securities yielding a P10,000 interest revenue. Costs incurred during the year were as follows: January 1 – P400,000 April 1 – P500,000 August 1 – P480,000 December 1 – P180,000 1) What is the capitalized interest added to the cost of the self-constructed asset? A . 90,000 B. 80,000 C. 180,000
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Arcana Company self-constructed an asset for its own use. Construction stated on January 1, 2017 and the
asset was completed on December 31, 2017. The company had a two-year, 18% loan of P500,000, specifically
obtained to finance the asset construction. Funds not yet needed during the construction were temporarily
invested in a short-term debt securities yielding a P10,000 interest revenue. Costs incurred during the year
were as follows:
January 1 – P400,000 April 1 – P500,000
August 1 – P480,000 December 1 – P180,000
1) What is the capitalized interest added to the cost of the self-constructed asset?
A
.
90,000 B. 80,000 C. 180,000 D. 0
2) How much is the total cost of the self-constructed asset?
A
.
1,650,000 B. 1,560,000 C. 1,640,000 D. 1,070,000
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