On 1 January, 2020, Opuni Ltd commenced the construction of a new factory. The following payments were made during 2020 GH 31 st January 200,000 31 st March 450,000 30 th June 100,000 31 st October 200,000 30 th November 250,000 The first payment on 31 st January was funded from the companys pool of debt. However, the company succeeded
On 1 January, 2020, Opuni Ltd commenced the construction of a new factory. The following payments were made during 2020
The first payment on 31st 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 31st 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, 31st December 2020
Medium-term loan (see above)
(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
interest payable annually on 31st December
You are required to
Calculate the amount of borrowing cost to capitalize.
International Financial Reporting And Analysis
Authors: David Alexander, Ann Jorissen, Martin Hoogendoorn