Exercise 10-8 (Part Level Submission) On December 31, 2013, Main Inc. borrowed $
ID: 2463499 • Letter: E
Question
Exercise 10-8 (Part Level Submission) On December 31, 2013, Main Inc. borrowed $6,600,000 at 13% payable annually to finance the construction of a new building. In 2014, the company made the following expenditures related to this building: March 1, $792,000; June 1, $1,320,000; July 1, $3,300,000; December 1, $3,300,000. The building was completed in February 2015. Additional information is provided as follows. 1. Other debt outstanding 10-year, 12% bond, December 31, 2007, interest payable annually $8,800,000 6-year, 11% note, dated December 31, 2011, interest payable annually $3,520,000 2. March 1, 2014, expenditure included land costs of $330,000 3. Interest revenue earned in 2014 $107,800 Collapse question part (a) Incorrect answer. Your answer is incorrect. Try again. Determine the amount of interest to be capitalized in 2014 in relation to the construction of the building. (Round answer to 0 decimal places, e.g. 5,275.) The amount of interest
Explanation / Answer
As per IFRS, interest cost is to be capitalized basis below rule :-
Capitalization period
Capitalization period is the time period during which interest expense incurred on a qualifying asset is eligible for capitalization. Interest is eligible for capitalization when (a) the expenditures have been made, (b) activities related to construction of asset are ongoing, AND (c) interest cost is being incurred. Capitalization period begins when all the conditions are met and ceases when the asset is ready. Capitalization also ceases when all the activities related to the project are suspended except where such delay is normal.
There the amount ot be capitalize is
March = $782000 - Land cost $330,000
June 1 - $1320000
July 1 - $3300,000
Dec - $3300,000
Interest cost - $858,000
Total cost to capitalize is $ 9230,000
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