AccountingA company engages in the development of a bridge. It is expected to take 3years to complete, at a cost of £500,000. While a £100,000 loan at an interestrate of 4% had been in place since the company first started trading on 1st Jan2010, the company decided to take out another bank loan of £300,000 @ 5%interest on 1st April 2014. Expenditure incurred on the development was asfollows:1st July 2014£50,0001st September 2014£60,0001st February 2015£40,000For the accounting period from 1st January to 31st December 2014, calculatethe amount of interest expense to be capitalised if:a. the loan was specifically taken out to finance the bridge development; andb. the loan was general in nature, used to fund the various projects of the company

Solution Concept As per the relevant accounting standard , the borrowing cost incurred on the…

the amo est expense to be capitalised It: the loan was specifically taken out to finance the bridge development; and the loan was general in nature, used to fund the various projects of the compar 10 10

the amo est expense to be capitalised It: the loan was specifically taken out to finance the bridge development; and the loan was general in nature, used to fund the various projects of the compar 10 10

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Accounting
A company engages in the development of a bridge. It is expected to take 3
years to complete, at a cost of £500,000. While a £100,000 loan at an interest
rate of 4% had been in place since the company first started trading on 1st Jan
2010, the company decided to take out another bank loan of £300,000 @ 5%
interest on 1st April 2014. Expenditure incurred on the development was as
follows:
1st July 2014
£50,000
1st September 2014
£60,000
1st February 2015
£40,000
For the accounting period from 1st January to 31st December 2014, calculate
the amount of interest expense to be capitalised if:
a. the loan was specifically taken out to finance the bridge development; and
b. the loan was general in nature, used to fund the various projects of the company

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