Ricardo Limited is constructing a Power Plant which was completed on 31st December 2023. The company obtained
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Question:
Ricardo Limited is constructing a Power Plant which was completed on 31st December 2023. The company obtained a bank loan of R1,000,000 at a rate of 15% per annum to construct the Power Plant on 1st January 2023. As of 31st December 2023, Ricardo Limited also had the following loans outstanding:
- 18% 5-year loan Note of R1,500,000
- 14% Debentures of R1,000,000
Expenditures on the project were made as follows:
- On the 31st March 2023, R600,000 was incurred;
- R800,000 was incurred on 30th June 2023;
- The final expenditure incurred was R300,000 on 31st December 2023.
During the year Ricardo Limited invested R400,000 of the bank loan for 2 months at an interest of 9% per annum.
Required:
Define Borrowing costs and the accounting standard
When do you capitalise costs and when are they expenses?
Determine the amount of borrowing costs to be capitalized and expensed.
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