Calculate the Borrowing cost to be Capitalized. (Interest Expense are the only Borrowing cost)
QUESTION THREE
On 1 January 2011, Godson Ltd entered into a GHC11,000,000 contract for the construction of an office complex in Kumasi. The building was completed at the end of December 2011. During the period, the following payments were made to the contractor;
Payment Date Amount (GHC'000)
1 January 2011 1,000
31 March 2011 3,000
30 September 2011 6,000
31 December 2011 1,000
Total 11,000
Godson's borrowings as at its year end of 31 December 2011 were as follows ;
10% 4 years Loan Note with simple interest payable annually, which relates specifically to the building project; debts outstanding at 31 December 2011 amounted to GHC3,500,000. Interest of GHC325,000 was incurred on these borrowing during the year, and interest income of GHC100,000 was earned on these funds while they were held in anticipation of payment.
12.5% Five-year Loan Note with Simple interest payment annually; debt outstanding at 1 January 2011 amounted to GHC5,000,000 and remained unchanged during the year.
10% Five year Loan Note with simple interest payable annually; debt outstanding at 1 January 2011 amount to GHC7,500,000 and remained unchanged during the year.
Required:
Calculate the Borrowing cost to be Capitalized. (Interest Expense are the only Borrowing cost)
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