CHAPTER 17: BORROWING COSTS

PROBLEMS
17-1 (IFRS)CHAPTER 17 Borrowing Cost Problem 17-2 CFAS 2020
Edition

Ans: B. 6,470,000
Solution:
Construction cost on January 1, 2020 P 6,000,000
Interest (6,000,000 x 10% x 11/12) 550,000
Interest Income ( 80,000)
Total Cost of plant P 6,470,000
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17-2 (IFRS)
Ans: D. 1,800,000
Solution:
Interest incurred (24,000,000 x 10%/12) P 2,000,000
Interest income ( 200,000)
Capitalizable borrowing cost P 1,800,000
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17-3 (AICPA Adapted)
1. B. 516, 000
Solution: Principal Interest
8% note payable (8% x 6,000,000) 6,000,000 480,000

9% note payable (9% x 9,000,000) 9,000,000 810,000

Total 15,000,000 1,290,000

Average interest rate (1,290,000/15,000,000) 8.60%

Average expenditures (12,000,000/2) 6,000,000

Capitalizable interest (6,000,000 x 8.6) 516,000

2. C. 774,000
Solution:
Total interest incurred 1,290,000
Capitalizable interest (516,000)

Interest expense for the year 774,000

17-4 (IAA)
Ans: C. 490,000
Solution:
Specific borrowing (4,000,000 x 10%) P 400,000
General borrowing (750,000 x 12%) 90,000
Capitalized interest P 490,000
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17-5 (IAA)
Ans: C. 247,000
Solution:
Specific borrowing (2,2000,000 x 10%) 220,000
Interest revenue (45,000)
General borrowing (800,000 x 9%) 72,000
Average Expenditures 3,000,000

Specific borrowing (2,200,000)

General borrowing 800,000

Capitalized interest 247,000

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17-6 (AICPA Adapted)

Ans: B. 1,450,000
Solution:

Interest on specific borrowing (10,000,000 x 10%) 1,000,000

Interest income related to specific borrowing (100,00)

Interest on general borrowing (5,000,000 x 11%) 550,000

Total capitalizable interest 1,450,000

17-7 (IAA)
1. C. 280,000
Weighted Average Accumulated Expense
= 1,000,000 x 12/12 = 1,000,000
2,000,000 x 6/12 = 1,000,000
3,000,000 x 2/12 = 500,000
= 2,500,000
Capitalizable Borrowing Cost
= 1,000,000 X 10% + (2,500,000 – 1,000,000) 12%
= 100,000 + 180,000
Capitalizable Borrowing Cost = 280,000
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2. B. 6,280,000
Solution:
Cost of the New Building
= (1,000,000 + 2,000,000 + 3,000,000) + 280,000
= 6,000,000 + 280,000
Cost of the New Building = 6,280,000
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3. A. 2,220,000

Interest Expense for 2020

= (1,000,000 X 10% + 20,000,000 X 12%) – 280,000
= 100,000 + 2,400,000 – 280,000
Interest Expense for 2020 = 2,220,000
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Problem 17-8 Multiple Choice

1. D
2. C
3. D
4. C
5. A
6. C
7. C
8. D
9. A
10. C
P ro b le m 1 7 -9
1. C
2. B
3. C
4. A
5. B
6. C
7. A
8. A
9. B
10. B