On 1 January, 2020, Opuni Ltd commenced the construction of a new factory. The following payments were made during 2020

			GH¢
31st January			200,000
31st March			450,000
30th June			100,000
31st October			200,000
30th November			250,000

The first payment on 31^st January was funded from the company’s pool of debt. However, the company succeeded in raising a medium-term loan for an amount of GH¢800,000 at 31^st March 2020 with simple interest of 9% per annum, calculated and payable monthly in arrears. These funds were specifically used for this construction. Excess funds were temporarily invested at 6% per annum monthly in arrears and payable in cash. The pool of debt was again used to an amount of GH¢200,000 for the payment on 30 November which could not be funded from the medium-term loan.

The construction project was temporarily halted for three weeks in May due to substantial technical and administrative work being carried out.

It is assumed that management of Opuni Ltd adopted the accounting policy of capitalizing borrowing costs.

The following amounts of debt were outstanding at the statement of financial position date, 31^st December 2020

					GH¢
Medium-term loan (see above)					800,000
Bank Overdraft					750,000
(the weighted average amount outstanding during
the year was GH¢750,000 and the total interest charged
by the bank amounted to GHC33,800 for the year
A 10%, 7-year note dated 1st October 2019 with simple					9,000,000
interest payable annually on 31st December

You are required to

Calculate the amount of borrowing cost to capitalize.

Answer rating: 100% (QA)

Loan Bank OD Total Calculation of Weighted Average Borrowing Rate Weighted Average Borrowing Rate Ca... View the full answer