Borrowing Cost + Additional Problem for investment property

Problem 1:ABC Corporation began construction of its building on January 1, 2021, with estimated cost of
P10 000,000. The construction is expected to end on Dec. 31, 2023. The entity borrowed P10, 000,000,
10% 5-year note dated January 1, 2021, to finance the construction. Both the interest and the principal
are payable on December 31, 2023. The first phase of construction is complete, the idle funds were used
to as investment and earned P100,000 investment income. The construction cost during 2021 is
P2,000,000.
1. How much is the interest expense for 2021? P100,000
2. How much is the capitalizable borrowing cost? P900,000
3. How much is the cost of the building at the end of 2021? P2,900,000

Problem 2: ABC Company began construction of its administration building at an estimated cost of
P2,000,000 on January 1,2021. The building was completed on December 31,2021. The entity had the
following loans during the year
Rate Types Principal
10% General loan 500,000
12% Loans payable 1,500,000
9% Short term loan 1,000,000
The following expenditure were made during 2021
Date Amount
January 1,2021 300,000
April 1,2021 500,000
July 1,2021 600,000
November 1,2021 800,000
The entity investment income from the borrowed fund amounts to P300,000
1. How much is the avoidable borrowing cost?
2. How much is the capitalizable borrowing cost?
3. How much is the interest expense?
4. How much is the value of the building at year end 2021?

Theory
1. Which of the following is false?
a. Interest is generally reported as expense
b. Interest can be capitalized if use to funds a qualifying asset
c. Funding an inventory would make the interest capitalizable
d. Funding a construction would make the interest capitalizable

2. Which is not an example of qualifying asset?

a. Property, plant, and equipment
b. Intangible assets
c. Bearing plants
d. Inventory
e. None of the above

3. Which of the following is true in using specific borrowing to fund qualifying assets?
Borrowing Cost + Additional Problem for investment property

a. The entity borrowed funds specifically for the purpose of the construction
b. The whole actual borrowing cost is capitalizable
c. If there is income from using the idle funds it must be deducted from the actual borrowing
cost to compute for the capitalizable interest
d. All of the choices

4. Which of the following is true in using general borrowing?

a. The capitalizable interest is the lower amount between the avoidable interest and the actual
interest
b. The entity should compute for the average capitalization rate
c. The entity should compute for the general weighted capital expenditure
d. Other income from using the idle funds will not be deducted from the borrowing cost
e. All of the choices

Problem 3: The following are the data of Nakakamatay Naman Company

Land 3,000,000
Building 2,000,000
Building use as store 1,000,000
Building leased out under operating lease 500,000
Building leased out under finance lease 400,000
Land with undetermined future use 1,000,000
Equipment held for capital appreciation 200,000
Vehicle for rentals 500,000
Land classified as held for sale 1,500,000
Building for sale under normal operation 2,000,000
Building of subsidiary held for rental 2,500,000
Land leased out to subsidiary under operating lease 1,400,000
Land used by associate who doesn’t pay rent 1,000,000
Building use by employee who pay rent 2,500,000
Building use by employee who doesn’t pay rent 1,000,000
Building use by subsidiary who doesn't pay rent 700,000
Building with mix use 40% rentals 60% store 3,000,000
Building with mix use 30% admin 70% rentals 2,000,000
Hotel buildings 5,000,000
Rental building in which the entity provides
insignificant ancillary services 3,000,000
Rental building of subsidiary in which the subsidiary
provides maintenance and security services 2,000,000
Rental building of associate in which the associate
provides maintenance and security services 1,000,000
Building in which the entity is the tenant 2,000,000
Land in which the entity is the tenant – Finance lease 2,000,000
Additional info: The second building with mix use cannot be sold or leased out separately.
1. How much is the investment property?
2. How much is the PPE?
3. In consolidated FS, how much is the investment property?
4. In consolidated FS, how much is the PPE?