Page 70 - SBR Integrated Workbook STUDENT S18-J19
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Chapter 5
Example 3
Borrowing costs
On 1 February 20X1 Blunt purchased land costing $2 million, and work began
immediately on the construction of a new factory. The construction work,
which cost $8 million, finished on 30 November 20X1, and Blunt moved into
the new premises on 1 December 20X1. Blunt borrowed $8 million at an
interest rate of 7% pa from the bank on 1 March 20X1 to finance the
construction costs. Of this amount, $5 million was paid in advance to the
contractor on 1 February 20X1, and $3m was paid on 30 November 20X1.
The unused funds were kept on deposit until 30 November 20X1, and interest
of $0.1 million was earned.
Discuss how this should be accounted for in the year ended 31
December 20X1.
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