Intermediate Accounting: BORROWING COSTS Requirements: What amount of borrowing cost should be capitalized as cost of the asset upon completion? Ultimate Company, a socially responsible multinational entity, decided to construct a tunnel that will link two sides of the village that were separated by a natural disaster years ago. Realizing its role as a good corporate citizen, the entity has been in this village a couple of years exploring oil gas in the nearby offshore area. The tunnel would take two years to build and 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 these sources and used the extra P5,000,000 for working capital purposes. Financing was arranged as follows: 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 the period of six months. Income from the investment was P500,000.
Intermediate Accounting: BORROWING COSTS Requirements: What amount of borrowing cost should be capitalized as cost of the asset upon completion? Ultimate Company, a socially responsible multinational entity, decided to construct a tunnel that will link two sides of the village that were separated by a natural disaster years ago. Realizing its role as a good corporate citizen, the entity has been in this village a couple of years exploring oil gas in the nearby offshore area. The tunnel would take two years to build and 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 these sources and used the extra P5,000,000 for working capital purposes. Financing was arranged as follows: 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 the period of six months. Income from the investment was P500,000.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Intermediate Accounting: BORROWING COSTS
Requirements: What amount of borrowing cost should be capitalized as cost of the asset upon completion?
Ultimate Company, a socially responsible multinational entity, decided to construct a tunnel that will link two sides of the village that were separated by a natural disaster years ago. Realizing its role as a good corporate citizen, the entity has been in this village a couple of years exploring oil gas in the nearby offshore area. The tunnel would take two years to build and 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 these sources and used the extra P5,000,000 for working capital purposes. Financing was arranged as follows:
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 the
period of six months. Income from the investment was
P500,000.
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