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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 and gas in the nearby offshore area. The tunnel would take two years to build and the total capital outlay needed for the construction would not be less than P20,000,000. To allow itselfa margin of safety, the entity borrowed P25,000,000 from three sources and used the extra P5,000,000 for working capital purposes. Financing was arranged as follows: - 7% Bank term loan Institutional borrowing - 8% Corporate bonds 5,000,000 10,000,000 10,000,000 - 9% In the first phase of the construction of the tunnel, there were idle funds of P10,000,000 which the entity invested for a period of six months. Income from this investment was P500,000. What amount of borrowing costs should be capitalized as cost of the asset?

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 and gas in the nearby offshore area. The tunnel would take two years to build and the total capital outlay needed for the construction would not be less than P20,000,000. To allow itselfa margin of safety, the entity borrowed P25,000,000 from three sources and used the extra P5,000,000 for working capital purposes. Financing was arranged as follows: - 7% Bank term loan Institutional borrowing - 8% Corporate bonds 5,000,000 10,000,000 10,000,000 - 9% In the first phase of the construction of the tunnel, there were idle funds of P10,000,000 which the entity invested for a period of six months. Income from this investment was P500,000. What amount of borrowing costs should be capitalized as cost of the asset?

FINANCIAL ACCOUNTING
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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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 and gas in the nearby offshore area. The tunnel would take two years to build and the total capital outlay needed for the construction would not be less than P20,000,000. To allow itselfa margin of safety, the entity borrowed P25,000,000 from three sources and used the extra P5,000,000 for working capital purposes. Financing was arranged as follows: - 7% Bank term loan Institutional borrowing 8% Corporate bonds 5,000,000 10,000,000 10,000,000 - 9% In the first phase of the construction of the tunnel, there were idle funds of P10,000,000 which the entity invested for a period of six months. Income from this investment was P500,000. What amount of borrowing costs should be capitalized as cost of the asset?
Transcribed Image Text: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 and gas in the nearby offshore area. The tunnel would take two years to build and the total capital outlay needed for the construction would not be less than P20,000,000. To allow itselfa margin of safety, the entity borrowed P25,000,000 from three sources and used the extra P5,000,000 for working capital purposes. Financing was arranged as follows: - 7% Bank term loan Institutional borrowing 8% Corporate bonds 5,000,000 10,000,000 10,000,000 - 9% In the first phase of the construction of the tunnel, there were idle funds of P10,000,000 which the entity invested for a period of six months. Income from this investment was P500,000. What amount of borrowing costs should be capitalized as cost of the asset?
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