CHAPTER 5 PROPERTY, PLANT AND EQUIPMENT

Learning Objectives
• Identify the different modes of acquisition of property, plant and equipment.
• State the elements of cost of property, plant and equipment.
• State when the capitalization of costs of property, plant and equipment ceases.

DEFINITIONS AND SCOPE

PAS 16 paragraph 6, defines property, plant and equipment as tangible items that:
• are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes; and
• are expected to be used during more than one period.
The cost of an item of property, plant and equipment is recognized as an asset if, and only if:
• it is probable that future economic benefits associated with the item will flow to the entity; and
• the cost of the item can be measured reliably.

For some items that satisfy the definition of an asset, significant judgment is required to evaluate whether
such items satisfy the recognition criteria. PAS 16 applies to all property, plant and equipment with the
exception of:
a) property, plant and equipment classified as held for sale in accordance with PFRS 5 Non-
current assets held for sale and discontinued operations.
b) biological assets related to agricultural activity (see PAS 41 – Agriculture).
c) the recognition and measurement of exploration and evaluation assets (see PFRS 6 –
Exploration for and evaluation of mineral resources); or
d) mineral rights and mineral reserves (e.g. oil, natural gas and similar non-regenerative
resources).

However, PAS 16 applies to property, plant and equipment used to develop or maintain the assets
described in b) to d) above.
Paragraphs 8 and 11 clarifies the following:
• Items such as spare parts, standby equipment and servicing equipment: If items such as spare
parts, standby equipment and servicing equipment meet the definition of property, plant and
equipment, they are accounted for as such in terms of PAS 16. If such items do not meet the
definition of property, plant and equipment, they are classified as inventory.
• Judgement is required in applying the recognition criteria to an entity’s specific circumstances
to determine what constitutes an item of property, plant and equipment. Thus, it may be necessary
to aggregate individually insignificant items and apply the criteria to the aggregate value.
• Safety equipment: Safety equipment that is indirectly necessary for the entity to obtain future
economic benefits from its other assets is accounted for as property, plant and equipment.

Owner occupied ‘investment property’ is accounted for as property, plant and equipment. In accordance
with PAS 40 Investment property the reporting entity may elect to carry their investment properties in
accordance with the benchmark accounting treatment of PAS 16 Property, plant and equipment, that is,
the cost model.
INITIAL MEASUREMENT OF PROPERTY, PLANT AND EQUIPMENT

An item of property, plant and equipment that qualifies for recognition as an asset, shall initially be
measured at cost. Cost is the amount of cash or cash equivalents paid or the fair value of the other
consideration given to acquire an asset at the time of its acquisition or construction, or where applicable,
the amount attributed to that asset when initially recognized in accordance with the specific requirements
of other standards or interpretations (e.g. PFRS 2 Share-based payment).

Cost is the purchase price and any directly attributable costs to bring the asset to the location and working
condition necessary for it to be capable of operating in the manner intended by management. Cost
therefore includes:
• the purchase price,
• import duties,
• non-refundable purchase taxes (e.g. VAT if non-refundable),
• employee benefit costs (arising directly from the construction or acquisition),
• site preparation,
• initial delivery and handling costs,
• installation costs (e.g. special foundations) and assembly costs,
• costs of testing the asset less any net selling proceeds from items produced during the testing
phase; and
• professional fees.

Cost is reduced by the amount of any trade discounts, volume rebates and settlement discounts.

Illustrative Example
Four different companies acquired assets as follows:

Company A purchased plant. The plant had a list price of 100,000. A special foundation for the plant was
constructed by company A's employees at a material cost of 1,000 and a labor cost of 2 000. A 10% trade
discount was negotiated on the list price of the plant.

Company B purchased a passenger motor vehicle for the business and private use of the financial director.
The car cost 114,000. A 10% settlement discount was negotiated.

Company C purchased plant at a cost of 114,000. An independent mechanical engineer charged 1,140
professional fees and 1,140 materials to modify the plant to fit the factory specifications.

Company D acquired plant under a finance lease. The present value of the minimum lease payments was
100,000 and ownership passed to the lessee at the end of the lease for no additional payment. It cost 2,000
for the plant to be delivered to the factory site.
 Company A Company B Company C Company D
Purchase Price 100,000 114,000 114,000 100,000
Trade Discount (10,000)
Special foundations:
-materials 1,000
- labor 2,000
Settlement discount (11,400)
Mechanical engineer:
- professional fees 1,140
- materials 1,140
Delivery 2,000
93,000 102,600 116,280 102,000

The cost of an item of property, plant and equipment includes any directly attributable costs to bring the
asset to the location and working condition necessary for it to be capable of operating in the manner intended
by management. Such costs also include:

• The costs of testing whether the asset is functioning properly reduced by the net proceeds from
disposal of the output produced during the testing process. The cut-off for inclusion of testing
expenses in the cost of an item is when the item can operate in a manner intended by management.
This clarifies that, for example, that the cost of an item excludes initial operating losses and similar
subsequent expenses.

• Any provision for the expected costs of dismantling and removing the asset and site restoration that
have, in accordance with PAS 37, been recognized as a liability. Where recognition of the provision
takes place subsequent to the initial measurement of the asset, it is added to the cost of the related
item of property, plant and equipment only if it is incurred as a consequence of having used the item
other than to have produced inventories.

The following costs are excluded from the cost of property, plant and equipment:
• costs of opening a new facility.
• costs of introducing a new product or service (including costs of advertising and promotional
activities).
• costs of conducting business in a new location or with a new class of customer (including staff costs
of staff training).
• administration and other general overhead costs.

Costs of subsequently redeploying an asset are not capitalized.

Illustrative Example
On January 1, 2021, Polluter Limited opened a new plant in Pietermaritzburg.
The following costs were incurred during January 20.1 in respect of the new plant:
• invoiced price of the plant 60,000,000
• direct costs of testing of plant to ensure that
 it is operating in the manner intended by management 2,000,000
• proceeds from the sale of the goods produced in testing (as scrap) (600,000)
• costs incurred in selling the scrap produced during testing 100,000
• plant opening function for dignitaries, staff, and clients 1,000,000

From February 1, 2021, the plant was ready to operate in the manner intended by management. The plant
incurred an operating loss of 5,000,000 for the month ended February 28, 2021, primarily due to initial
low orders levels. Production levels reached break-even point in early March 2021, and thereafter the
plant operated profitably.

Environmental legislation requires that the site upon which the plant is developed be rehabilitated by
Polluter Limited at the end of the plants useful economic life that has been reliably estimated at 10 years.
On January 1, 2021, an environmental restoration provision of 1 million was, in accordance with PAS 37,
raised in this respect.

Required:
Calculate the cost of the plant in accordance with PAS 16 – Property, plant and equipment. Briefly
support your answer.

Solution:
Brief supporting reasons:
invoiced price of the plant 60,000,000 Incurred to ensure that the plant operates in
the manner intended by management

direct costs of testing of plant 2,000,000 Incurred to ensure that the plant operates in
the manner intended by management

net proceeds from the sale of (500,000)

scrap produced in the testing
process
plant opening function for 0
dignitaries, staff and clients
operating loss 0 Not included as incurred after 1
February 2021
environmental restoration 1,000,000 Included in cost as the provision
has been raised in accordance
with PAS 37
62,500,000

Cost - Items Acquired in Exchange for Own Equity Instruments

If an item of property, plant and equipment is acquired in exchange for equity instruments of the entity,
the cost of the item is equal to the fair value of the item received unless that fair value cannot be estimated
reliably. If the entity cannot estimate reliably the fair value of the item received, the fair value of the item
is measured by reference to the fair value of the equity instruments granted.
Cost - items acquired in a barter transaction

The cost of the item received in a barter transaction is measured at its fair value unless,
(a) the exchange transaction lacks commercial substance (see paragraph 25) or
(b) the fair value of neither the asset received nor given up is reliably measured.
If the acquired asset is not measured at fair value, its cost is measured at the carrying amount of the asset
given up.

Cost - imported property, plant and equipment

PAS 21 The effects of changes in foreign exchange rates paragraph 21 provides that a foreign currency
transaction shall be recorded, on initial recognition in the functional currency, by applying to the foreign
currency amount the spot exchange rate between the functional currency and the foreign currency at the
date of the transaction. (For examples illustrating these principles, see the chapter on Foreign Currency
Transactions.)

Component parts and regular major inspections

Although PAS 16 does not use the expression ‘component’, the standard effectively uses a component
approach in accounting for property, plant and equipment in that it refers to a single asset having different
parts (see paragraphs 13 and 43). An entity allocates the amount initially recognized to its significant
parts and depreciates each such part. Examples of such circumstances are:

Component parts
• an airline effectively accounts for its aircraft as three separate items of property, plant
and equipment namely: jet engines, plane bodies, and interior fittings; and

• a ceramic manufacturer effectively accounts for furnaces and furnace linings as separate
items of property, plant and equipment.

Regular major inspections

Some items of property, plant and equipment must be inspected for faults periodically, as
a condition of continuing to operate the asset. The cost of such major inspections may be
included as a separate component of the asset upon initial recognition. If not invoiced for
separately, this amount can be estimated. The separate component is depreciated over the
expected period to the next inspection. Should the inspection take place before expected,
then the remaining carrying amount of the prior inspection is written off, and the new
inspection cost capitalized. The costs of day-to-day servicing are recognized in profit or
loss as incurred.

Illustrative example: Component parts and regular major inspections

On January 1, 2021, the risks and rewards of ownership of a new Lear jet passed to Flight Limited. The
jet, which is to provide international mobility to the company’s most senior executives, cost 40,000,00.
The company intends keeping the jet until it is obsolete (i.e. 20 years) at which time it is expected to have
no residual value. Although the invoice did not provide an analysis of the purchase price, it can
reasonably be allocated as follows:

Engines 20,000,000 Estimated,useful,life,10,years,with,no,residual,value,

Airframe 14,000,000 Estimated,useful,life,20,years,with,no,residual,value,
Furniture,and,fittings 4,000,000 Estimated,useful,life,5,years,with,no,residual,value,
Inspection,costs 2,000,000 Such,inspections,are,required,by,aviation,authorities,every,two,years,

40,000,000

PART A:
Required:
Compute the amount of depreciation to be expensed by Flight Limited in respect of the jet for the
year ended December 31, 2021.

Solution:
Depreciation expense in respect of the jet for the year ended 31 December 2021.

Engines 2,000,000 20,000,000/10 years

Airframe 700,000 14,000,000/20 years
Furniture,and,fittings 800,000 4,000,000/5 years
Inspection,costs 1,000,000 2,000,000/2 years

4,500,000

PART B:
Additional information:
On June 30, 2022, for reasons of convenience, the company undertook the requisite inspection six
months earlier than required by the aviation authorities. The cost of the inspection was 2,200,000
and the next scheduled inspection is June 30, 2024.

Required:
Briefly outline how Flight Limited shall account for the inspection cost during 2022, in accordance
with PAS 16 Property, plant and equipment.

Solution:
In its interim financial statements for the six-month period ended 30 June 2022, Flight Limited
would provide depreciation of 500,000 in respect of the pre-existing inspection cost component of
the jet. This would reduce the carrying amount of this component to 500,000 at June 30, 2022.
In its 2022 annual financial statements, depreciation of 1,050,000 (i.e. 500,000 January to June on
original inspection costs 550,000 July to December on ‘new’ inspection costs) would be computed.
Further, the remaining carrying amount at June 30, 2022 of 500,000 on the original inspection
costs would also be expensed on June 30, 2022 (i.e. when the premature current year inspection
took place).

The carrying amount of the inspection cost component of the jet is therefore 1,650,000 at
December 31, 2022.
ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE OF GOVERNMENT
ASSISTANCE

PAS 20 paragraph 24 provides that government grants related to assets shall be presented in the statement
of financial position either:
• as deferred income, or
• by deducting the grant in arriving at the carrying amount of the asset.
Repayments of government grants are accounted for as a change in accounting estimate.

Where the reporting entity deducts the grant in arriving at the carrying amount of the asset, then with
respect to grants that become repayable (e.g. revoked), the repayment is recorded by adjusting the
carrying amount of the asset, and accounted for as a change in estimate (on the cumulative catch-up
method).

A 2008 amendment to PAS 20 includes the benefit of a government loan at a below-market rate of
interest as a government grant. This benefit, which is accounted in accordance with PAS 20, is measured
as the difference between the initial carrying value of the loan determined in accordance with PAS 39 and
the proceeds received.

Illustrative example: Government grants

Construction Limited purchase an item of plant on January 1, 2020. The plant costs 100 000 and has a
useful life of 4 years and a nil residual value. Depreciation is calculated using the straight-line method.
On 3 January, the local government authority award and pay Construction Limited a grant of 20% of the
cost (20,000) towards the cost of the plant as it has met certain qualifying conditions under a scheme
currently being promoted to encourage investment.

Required:
Show how the plant and government grant will be disclosed in the financial statements for the years 2020
to 2023.

Solution:
Grant is recognized as deferred income

Statement of Financial Position 2020 2021 2022 2023

Note

Property, plant and equipment

At the beginning of the year
Cost 100,000 100,000 100,000
Accumulated depreciation (25,000) (50,000) (75,000)
Carrying amount at beginning of year 75 000 50,000 25 000
Current year movements
Additions 100,000
Depreciation (100,000/4) (25,000) (25,000) (25,000) (25,000)
Carrying amount at year end 75,000 50,000 25,000
Deferred income 15,000 10,000 5,000
 Statement of Comprehensive Income 2020 2021 2022 2023
Depreciation 25,000 25,000 25,000 25,000
Subsidy in respect of depreciable asset (5,000) (5,000) (5,000) (5,000)
20,000 20,000 20,000 20,000

Grant is deducted in arriving at carrying amount of the asset

Statement of Financial Position 20.0 20.1 20.2 20.3

Note Rand Rand Rand
Property, plant and equipment
At the beginning of the year
Cost - 100 000 100 000 100 000
Subsidy - (20 000) (20 000) (20 000)
Accumulated depreciation - (20 000) (40 000) (60 000)
Carrying amount at beginning of - 60 000 40 000 20 000
year
Current year movements
Additions 100 000 - - -
Subsidy (20 000) - - -
Depreciation [(R100 000 – R20 000)/4 (20 000) (20 000) (20 000) (20 000)
years]
Carrying amount at year end 60 000 40 000 20 000 0
Made up as follows:
Cost 100 000 100 000 100 000 100 000
Subsidy (20 000) (20 000) (20 000) (20 000)
Accumulated depreciation (20 000) (40 000) (60 000) (80 000)
60 000 40 000 20 000
Statement of Comprehensive Income
Depreciation 20 000 20 000 20 000 20 000

Government grants relating to income

PAS 20 requires grants relating to income to be presented either separately or as “other income” in the
statement of comprehensive income or to be deducted from the related expense.

Disclosure
• The accounting policy adopted for government grants, including the methods of presentation adopted in
the financial statements.
• The nature and extent of such grants recognized in the financial statements and an indication of other
forms of government assistance from which the entity has directly benefited; and
• Unfulfilled conditions and other contingencies attaching to government assistance that has been
recognized.

COST – SELF-CONSTRUCTED ASSETS (INCLUDING BORROWING COSTS)

The cost of a self-constructed asset is determined using the same principles as for an acquired asset. The
costs of a self-constructed asset include, in addition to the components of costs in respect of the purchased
assets:
• costs of construction (excluding internal profit and abnormal wastage),
• costs of employee benefits arising directly from the construction of the item, and
• borrowing costs capitalized in accordance with PAS 23.
Income and expenses in respect of incidental operations (that are not necessary to bring the asset to the
location and working condition necessary for it to be capable of operating in the manner intended by
management) in connection with the construction or development of an item of property, plant and
equipment, are recognized in profit or loss for the period (i.e. they are not capitalized). Paragraph 21 of
PAS 16 gives the example of a building site that is operated as a parking lot prior to the commencement
of construction. This would apply even where the parking lot operates whilst construction is underway.

Capitalization of borrowing costs

The core principle in PAS 23 is that borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset shall be capitalized as part of the cost of that asset. Prior
to this revision, entities were given the choice as to whether to expense borrowing costs or to capitalize
borrowing costs in respect of qualifying assets.

Qualifying assets commonly include property, plant and equipment, investment property and inventories
produced under construction contracts. Inventories consisting of investments and products produced by
repetitive production lines over short time periods are specifically excluded. The most important feature
of qualifying assets is that they must take a substantial period of time to get ready for their intended use or
sale.
Borrowing costs include:
• Interest expense calculated using the effective rate method as described in PAS 39 Financial
Instruments: Recognition and Measurement,
• finance charges on finance leases, and
• exchange differences arising from foreign borrowings to the extent that they represent interest
rate differentials (possibly calculated with reference to inflation rate differentials).

Borrowing costs exclude the actual or imputed cost of equity, including preference share capital not
classified as a liability.

Preference shares which in terms of PAS 32 are classified as liabilities, would fall into the definition of
borrowing costs, whilst those classified as equity would not. It is possible for a single class of preference
share to have both an equity part and a liability part (e.g. fixed rate preference shares compulsorily
convertible into ordinary shares under specified fixed terms on a specific date). The convertible
preference shares would be presented in the financial statements in two separate parts (equity and
liability) and only the costs apportioned to the liability portion may be capitalized in accordance with PAS
23. A similar situation arises in respect of compulsorily convertible debentures.

The borrowing costs associated with preference shares (classified as liabilities) include:
• interest (in the form of the preference dividend),
• amortized discounts and premiums on issue and redemption, and
• issue costs.

The amount of borrowing costs capitalized will depend upon the source of the funds utilized to construct
the asset.
• Where specific loans are raised to fund the production of the asset, then the costs attached to
those funds, reduced by the earnings from the investment of the surplus loaned funds, are
capitalized (provided all of the criteria for capitalization are met).
 • Where general funds are used, a suitable weighted average capitalization rate is utilized. These
capitalized borrowing costs cannot exceed the actual borrowing cost of the reporting entity for
that period. (Only borrowing costs that have been incurred may be capitalized.)

Borrowing costs may only be capitalized from the date upon which (and to the extent that) all of the
following apply:
• expenditures are being incurred on the qualifying asset (reduced by progress payments
received),
• borrowing costs are being incurred, and
• activities to prepare the asset have begun (including technical and administrative activities prior
to construction but excluding the act of merely holding an asset).

Capitalization ceases when substantially all activities to prepare the asset are completed. Therefore, no
capitalization occurs after construction has been completed, irrespective of whether the asset is held as
property, plant and equipment or inventory.

Capitalization is suspended when activities on the development of the asset are stopped for extended
periods of time, unless the interruption is required as an integral part of the production process (e.g.
special foundations that take 1 month to dry).

Illustrative example: Funds are borrowed specifically for the purpose of obtaining a qualifying asset

On January 1, 2021, 500 000 was borrowed at 15% to finance the construction of a qualifying asset.
Construction commenced on March 1, 2021 and expenditure was incurred at 40 000 per month from
March to December inclusive. Interest on investments at short call were as follows:

January to February 20.1 March to December 20.1

Surplus funds relating to 500 000 8,000 24,000
borrowed
Other surplus funds 3,000 20,000
11,000 44,000

Interest may only be capitalized as from the date on which all of the following requirements are met:
(a) expenditures are incurred - from March 1, 2021,
(b) borrowing costs are incurred – from January 1, 2021, and
(c) activities are in progress – from March 1, 2021.

Capitalization of borrowing costs therefore commences on March 1, 2021 (i.e. when all three conditions
are satisfied).

Since the funding is by way of a specific loan, interest paid less interest received on surplus specific loan
monies invested, is capitalized for the financial year ended December 31, 2021.
 Calculation:

Interest paid on specific loan: 1 Interest on 15% (500,000) x 10/12 62,500

Investment of specific surplus funds: March 1 to months
December 31, 2021
To be capitalized (24,000)
38 500
Included in notes to the statement of comprehensive income:

Other income: interest (11,000 January to February + 44 000 March to December) 55,000
Deducted from borrowing costs capitalized (24,000)
31,000
Borrowing costs incurred (50, 000 x 15%) 75,000
Borrowing costs capitalized (62,500)
Borrowing costs expensed 12 500

In 2022 the expenditure continues at 40 000 per month for a further three months, at the end of which the
asset was ready for its intended use. Interest at 15% was paid on the loan of 500,000 for the whole of
2022.

Borrowing costs are capitalized in 2022 for the period January to March. According to paragraph 22 of
PAS 23, capitalization of borrowing costs ceases when substantially all the activities necessary to prepare
the qualifying asset for its intended use or sale are complete. Therefore, interest to be capitalized for the
year ended December 31, 2022 is 750 (500,000 x 15% x 3/12). The amount capitalized would be reduced
by interest income on the surplus funds invested.

Note: In this illustration, the pattern of the expenditure made is ignored for the purpose of calculating the
borrowing costs to be capitalized. This is because when the loan is a specific loan, then the borrowing
costs to be capitalized are the actual borrowing costs incurred on the specific loan less interest income on
temporary investment of that specific loan.

Illustrative example: Capitalization of borrowing costs on non-specific loans (excluding

compounding)

The following loans were outstanding during 2021:

• R100 000 at 12% for the whole year
• R50 000 at 10% for the period 1 January to 30 April
• R60 000 at 11% for the period 1 July to 31 December

Expenditures on the asset were as follows:

• Prior to January 20.1 – R15 000 (i.e. balance b/f)
• January to March – R10 000 per month
• April to August – R12 000 per month
• September to December – R13 000 per month

The above expenditures were incurred evenly during each month.

Required:
Calculate the amount of borrowing costs that may be capitalized for the year ended December 31, 2021.

Solution:
Step 1: Calculate the weighted average interest rate on the loans:

Calculation: Php Time apportionment: Php

R100 000 x 12% 12,000.00 100 000 x 12/12 months 100,000.00
R50 000 x 10% x 4/12 1,667.00 50 000 x 4/12 months 16,667.00
R60 000 x 11% x 6/12 3,300.00 60 000 x 6/12 months 30,000.00
Total borrowing costs 16,967.00 Average balance 146,667.00

The weighted average interest rate = 16,967(A)/146,667(B) = 11,57%

Note: PAS 23 does not give any guidance on this calculation and other valid calculations are acceptable.
For instance, a weighted average interest rate (or capitalization rate) could be calculated more frequently
than annually.

Calculation: Average loan Computed

funds utilized borrowing
Costs
January to March: 15 000 + (10 000 pe month x 3 months)/2 30,000.00
30 000 x 11,57% x 3/12 months 868.00
April to August: 15 000 + 30 000 + (12 000 x 5)/2 75,000.00
75 000 x 11,57% x 5/12 months 3,616.00
September to 15 000 + 30 000 + 60 000 + (13 000 x 4)/2 131,000.00
December:
131 000 x 11.57% x 4/12 months 5,052.00
To be capitalized 9,536.00

The amount that is capitalized may not exceed the actual borrowing costs incurred (paragraph 14). As the
amount calculated above is less than R16 967(A), R9 536 may be capitalized.

Explanation:
At the beginning of January, 15,000 had been spent. From January to March, a further 10,000 was spent
each month. Because the expenditure was made during the month (i.e. the 10,000 built up from 0 at the
beginning of the month to 10,000 at the end of the month) it needs to be averaged. Therefore, a total of
30,000 was spent over the 3 months – or the average expenditure for those 3 months was 15,000. (At the
beginning of the 3 months 0 was spent and by the end of the 3 months, 30,000 had been spent – the
middle point or average point would be 15.000.) Therefore, the first calculation is the 15,000 spent for the
whole of the 3 months plus the 15,000-average expenditure during the 3 months multiplied by the interest
rate for 3 months. Alternatively, each month could be averaged:
 2021 Calculation: Php

January 1 15 000 (already spent) x 3/12 x 11,57% = 433.875

January 10 000 x ½ (i.e. average) x 3/12 x 11,57% = 144.625

February 10 000 x ½ (i.e. average) x 3/12 x 11,57% = 144.625
March 10 000 x ½ (i.e. average) x 3/12 x 11,57% = 144.625
867.75
Note: When calculating the borrowing costs for the next period, the previous expenditures must be
brought forward as these amounts represent expenditures which have already been made.

To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset,
the amount of borrowing costs eligible for capitalization shall be determined by applying a capitalization
rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the
borrowing costs applicable to the borrowings of the entity that are outstanding during the period, other
than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of
borrowing costs capitalized during a period shall not exceed the amount of borrowing costs incurred
during that period (paragraph 14).

Therefore, if the funds are borrowed generally, the borrowing costs to be capitalized are calculated by
determining the actual expenditures made, and then applying an interest rate to those expenditures.

Video Reference:
https://www.youtube.com/watch?v=wwXntLAHfmY
https://www.youtube.com/watch?v=JkDTccj74Mw
https://www.youtube.com/watch?v=28Vyx4BWl1s
https://www.youtube.com/watch?v=9n-OOl4qfPc