Kwamo Construction Ltd constructed a bridge to connect two sides of a town separated by a natural disaster. The bridge would take two years to build and the total capital outlay needed for the construction would not be less than GH₵40 million. To allow itself a margin of safety, Kwamo Ltd borrowed GH₵44million from three sources and used the extra GH₵4 million for its working capital purposes. 

Financing was arranged in this way: 

Bank term loans GH₵10 million at 7% per annum Institutional borrowings: 

GH₵14 million at 8% per annum Corporate bonds: 

GH₵20 million at 9%per annum In the first phase of the construction of the bridge, there were idle funds of GH₵20million, which Kwamo Ltd. invested for a period of six months. 

Income from this investment was GH₵1,000,000. 

Required: 

Under IAS 23, how would it treat the borrowing costs? 

How would it capitalize the borrowing costs, and what would it do with the investment income?

Answer rating: 100% (QA)

Under IAS 23 International Accounting Standard 23 borrowing costs that are directly attributable to ... View the full answer