BILDA S. A., a hypothetical company, borrows €1,000,000 at an interest rate of 10 percent per year on 1 January 2010 to finance the construction of a factory that will have auseful life of 40 years. Construction is completed after two years, during which time thecompany earns €20,000 by temporarily investing the loan proceeds.1. What is the amount of interest that will be capitalized under IFRS, and how wouldthat amount diff er from the amount that would be capitalized under U.S. GAAP?2. Where will the capitalized borrowing cost appear on the company’s financialstatements?
BILDA S. A., a hypothetical company, borrows €1,000,000 at an interest rate of 10 percent per year on 1 January 2010 to finance the construction of a factory that will have auseful life of 40 years. Construction is completed after two years, during which time thecompany earns €20,000 by temporarily investing the loan proceeds.1. What is the amount of interest that will be capitalized under IFRS, and how wouldthat amount diff er from the amount that would be capitalized under U.S. GAAP?2. Where will the capitalized borrowing cost appear on the company’s financialstatements?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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BILDA S. A., a hypothetical company, borrows €1,000,000 at an interest rate of 10 percent per year on 1 January 2010 to finance the construction of a factory that will have a
useful life of 40 years. Construction is completed after two years, during which time the
company earns €20,000 by temporarily investing the loan proceeds.
1. What is the amount of interest that will be capitalized under IFRS, and how would
that amount diff er from the amount that would be capitalized under U.S. GAAP?
2. Where will the capitalized borrowing cost appear on the company’s financial
statements?
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