On 1 January 20X5 Company A commenced the construction of a new office building. The office building was completed on 31 December 20X5. To fund the construction of the building, Company A used both specific borrowings and general borrowings. On 1 January 20X5 Company A obtained a five-year 10 per cent loan of €800,000. This loan was obtained specifically for the purpose of funding the construction of the new office building. During 20X5 interest of €80,000 was incurred on the €800,000 loan. On 1 January 20X5 Company A’s general borrowings included a ten-year 8 per cent loan of €1,800,000 and a ten-year 11 per cent loan of €1,500,000. The debt outstanding on the three loans remained unchanged throughout the year. During 20X5 the following payments were made to the building contractor hired to construct the new office building: 

Required:

Calculate the amount of borrowings costs that Company A should capitalize for the period to 31 December 20X5.

Transcribed Image Text:

Date of payment 1 January 20X5 31 March 20X5 31 July 20X5 31 October 20X5 31 December 20X5 Total construction costs Amount € 500,000 600,000 700,000 800,000 300,000 2,900,000