Kerrybub Ltd. began building a new plant on 12/31/13. They paid $250,000 for ass
ID: 2497685 • Letter: K
Question
Kerrybub Ltd. began building a new plant on 12/31/13. They paid $250,000 for associated pre-construction costs (permits, architect, etc.) on that date also. Payments to the contractor occurred as follows:
Date
Amount in $
3/1/14
240,000
5/1/14
330,000
7/1/14
60,000
The plant was completed on 7/1/14.
To help finance construction of this plant Kerrybub borrowed $100,000 on 12/31/13 at 7%. In addition, Kerrybub had the following debt outstanding during 2014:
Principal
Rate
Due date
$300,000
6%
12/31/16
$300,000
5%
4/30/15
What is the total capitalized cost of this new plant?
Date
Amount in $
3/1/14
240,000
5/1/14
330,000
7/1/14
60,000
Explanation / Answer
Weighted average accumulated expenditure
Avoidable interest
specific debt 100,000 @7% *1/2 = $3,500
General debt 300,000 @6% *1/2 = 9,000
300,000 @5%*1/2 = 7,500
total = $20,000
Weighted average interest rate on general debt = 16,500/600,000 = 2.75%
hence capitalised cost will be $15,050
Date Amount Capitalisation period weighted average accumulated expenditure 12/31/13 $250,000 6/6 250,000 3/1/14 240,000 4/6 160,000 5/1/14 330,000 2/6 110,000 7/1/14 60,000 0/6 0 $520,000Related Questions
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