1,460 Special-order machine for sale to unrelated customer, produced according t

Question

1,460 Special-order machine for sale to unrelated customer, produced according to customer's Inventories routinely manufactured, produced on a repetitive bas All of these assets required an extended period of time for completion 8,760 8,510 Situation I11 nc. has nscal year .ning Apri 30. On May 1, 2017, Sandhill borrowed S 10,890,000 at 11% to finance are to $7,623,000. These e tho were incurred evenly throughout the year. Interest earned on tho unexpended portion of the loan amounted to S707.050 How much should be shown as capitalized interest on Sandhill's financial statements at April 30, 2018

Explanation / Answer

Solution

Interest cost = ($10890000*11%) = $1197900

Total Expenditure on partially completed structure = $7623000

Expenditure are occurring evenly throughout the year

Weighted average Expenditure cost = ($7623000/2) = $3811500

Interest cost to be capitalised (To be less than actual interest of $1197900 = ($3811500*11%) = $419265

Note 1 - Capitalisation Rules

1) Expenditure are incurred for project

2) Interest cost is incurred

3) All activities (Relevant to make asset ready to use) are under progress

Note 2 - Interest revenue earned on unexpected portion of loan is not Relevant. Such revenue can not be adjusted again capitalised Interest.

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