Capitalized Interest: Multiple-Year Computation The company had the following lo
ID: 2456976 • Letter: C
Question
Capitalized Interest: Multiple-Year Computation The company had the following loans outstanding for the entire year: The company began the self-construction of a building on January 1. The following expenditures were made during the years Assume that construction was not completed on December 31 of year 1. Also assume that the same loans were outstanding for all of year 2. The following expenditure was made during year 2: Compute the amount of interest capitalized during Year 2. Compute the recorded cost of the building at the end of Year 2.Explanation / Answer
1. Interest capitalisation of specific loan = 100000 * 10%= $10000
Interest capitalisation of general loan = (1170000-100000) * 12% = $128400
Total Interest capitalisation during year 2 = $138400
2. Interest capitalisation during year 1:
Interest capitalisation of specific loan = 100000 * 10%= $10000
Interest capitalisation of general loan = (600000-100000)* 12% = $60000
Total Interest capitalisation during year 2 = $70000
Cost of Building
$ Cost of Contruction in Year 1 600000 Add: Interest Capitalisation in year 1 70000 Value of Buiding at year 1 end 670000 Add: Interest Capitalisation in year 2 138400 Value of Building at year 2 end 808400