Calculate the borrowing costs to be capitalised.
On 1st January 2018, Global Drilling Ltd entered into a GHS22million contract for the construction of an office complex at Tema. The building was completed at the end of December 2018. During the period, the
following payments were made to the contractor:
Payment date Amount
GHS’m
1 January 2018 2.00
31 March 2018 6.00
30 September 2018 12.00
31 December 2018 2.00
22.00
Global Drilling’s borrowings as at its year end of 31st December 2018 were as follows:
10% 4-year Loan Note with simple interest payable annually, which relates specifically to the building project, loans outstanding at 31st December 2018 amounted to GHS7,000,000. Interest of GHS700,000 was incurred on these borrowings during the year, and interest income of GHS200,000 was earned on these funds while they were held in anticipation of payments.
12.5% Five-year Loan Note with simple interest payable annually; debt outstanding at 1st January 2018 amounted to GHS10,000,000 and remained unchanged during the year.
10% Five-year Loan Note with simple interest payable annually; debt outstanding at 1st January 2018 amounted to GHS15,000,000 and remained unchanged during the year
Required:
Calculate the borrowing costs to be capitalised.
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