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solution

On 1 January 2009, Lee Limited (Lee) borrowed $400 million to finance the construction work on a property, which was expected to take 2 years to build. Construction work on this qualifying asset was commenced on 1 January 2009.

Lee drew down the loan facilities in two parts in the amounts of $100 million and $300 million on 1 January 2009 and 1 July 2009 respectively. Funds used for expenditures on the construction of the property were as follows:

Interest on the loan was fixed at 10% per annum.

Required:

1. Determine the borrowing costs eligible for capitalisation for the year ended 31 December 2009 and consequently the cost of the property as at 31 December 2009.

2. Prepare the journal entry to account for the borrowing costs capitalised in 2009.

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