BORROWING COSTS

PROBLEM 1 Jec Company purchased a condominium unit on January 1, 2019 and moved into the building on the
same day for P10,000,000. Jec made a downpayment of P5,000,000 and the balance is payable annually for
P1,000,000 starting on December 31, 2019.
The implicit borrowing rate for this type of loan is 12%.
Required: Compute the capitalizable borrowing costs.

PROBLEM 2 Chum Company started construction of a new office building on January 1, 2019 and moved into the
finished building on July 1, 2020.
Of the P25,000,000 total cost of the building, P20,000,000 was incurred in 2019 evenly throughout the year.
The entity’s incremental borrowing rate was 12% throughout 2019, and the total amount of interest incurred was
P1,020,000.
The entity earned interest of P200,000 for the year on the unexpended portion of the loan.
Required:
1. Provide the relevant entries in 2019.
2. Determine the capitalizable borrowing costs.
3. Determine the carrying amount of the building as of December 31, 2019?

PROBLEM 3 Sulo Company had the following borrowings during 2019. The borrowings were made for general
purposes but the proceeds were used to finance the construction of a new building.
Principal Interest

12% bank loan 3,000,000 360,000

14% long term loan 5,000,000 700,000

The construction began on January 1, 2019 and was completed on December 31, 2019.
Expenditures on the building were P2,000,000 on January 1, P2,000,000 on June 30 and P1,000,000 on December
31.
Required:
1. Provide the relevant entries in 2019.
2. Determine the capitalizable borrowing costs.
3. Determine the carrying amount of the building as of December 31, 2019?

PROBLEM 4 Molave Company had the following outstanding loans during 2019 and 2020.
Specific construction loan 3,000,000 10%

General loan 25,000,000 12%

The entity began the self-construction of a new building on January 1, 2019 and the building was completed on June
30, 2020. The following expenditures were made:
January 1, 2019 4,000,000

April 1, 2019 5,000,000

December 1, 2019 3,000,000

March 1, 2020 6,000,000

Required:
1. Provide the relevant entries in 2019 and 2020.
2. Determine the capitalizable borrowing costs in 2019 and 2020.
3. Compute the interest expense in 2019 and 2020.
4. Determine the carrying amount of the building as of
a. December 31, 2019.
b. June 30, 2020.