Question: King Konstruction Ltd will construct an oil rig during its current financial year ended 30 June 2023. To construct the oil rig, King Konstruction

King Konstruction Ltd will construct an oil rig during its current financial year ended 30 June 2023. To construct the oil rig, King Konstruction Ltd will need more loans in addition to the existing finance facilities already obtained by the entity. The construction began on 1 July 2022 and was completed on 30 June 2023. The Financial Manager at King Konstruction Ltd requires your assistance to determine the amount of borrowing costs that can be capitalized to the cost of the oil rig plant. Details regarding certain payments relating to the construction of the oil rig: Description Date of payment Amount of payment Payment to a contractor 1 July 2022 R4 000 000 Payment to a supplier 1 January 2023 R3 000 000 1 March 2023 R5 000 000 Payment to a contractor Total R12 000 000 A specific loan for the R12 000 000 was negotiated with Green Bank and obtained on 1 July 2022 at a rate of 8.5% per annum. Any surplus funds regarding the specific loan were reinvested at another bank, Blue Bank at 7.2% per annum.

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