Example 1

Grimtown took out a $10 million 6% loan on 1

January 20X1 to build a new football stadium. Not all
of the funds were immediately required so $2 million
was invested in 3% bonds until 30 June 20X1.
Construction of the stadium began on 1 February
20X1 and was completed on 31 December 20X1.

Calculate the amount of interest to be capitalised in

respect of the football stadium as at 31 December
20X1.
 Practice Question
Extract of Kitana’s Trial balanace at 30 June 20X5 $ $

Property plant and equipment 762,500

5% Bank loan 50,000
Finance costs paid 2,500

Kitana took out a 5% bank loan on 1 July 20X4 to help

finance the construction of a new head office.
Construction of the building commenced on 1 October
20X4, and is expected to continue until 30 June 20X7.
Calculate the amount of interest to be capitalised by
Kitana for the year ended 30 June 20X5.
Vendo took out a $10m 9% loan on 1 January 20X7
for the construction of a new office building. Due to
delays, construction didn’t begin until 1 March 20X7
and was completed on 1 November 20X7. As not all
funds were needed immediately, $2m was invested
in 5% bonds from 1 January to 30 April 20X7.

What amount of interest should be capitalised in

relation to Vendo’s new office building in accordance
with IAS 23 Borrowing costs?
A $566,667
B $716,667
C $600,000
D $583,333