Problem 25-9
Principal Borrowing cost
10% 10 year note 1,500,000 150,000
8% note 1,000,000 80,000
2,500,000 230,000
Capitalization rate (230,000/2,500,000) 9.2%
Average expenditure 3,900,000
Less: Applicable to specific borrowing 2,000,000
Applicable to general borrowing 1,900,000
Interest on specific borrowing (2,000,000 x 7.5%) 150,000
Less: Interest income 59,000
Capitalizable borrowing cost for specific loan 91,000
Interest on specific loan 91,000
Interest on general loan (1,900,000 x 9.2%) 174,800
Capitalizable borrowing cost 265,800
Problem 25-10
Principal Borrowing cost
Bank A - 6% 8,000,000 480,000
Bank B - 6.6% 10,000,000 660,000
Bank C 7% 30,000,000 2,100,000
48,000,000 3,240,000
1.
Capitalization rate (3,240,000/48,000,000) 6.75%
Capitalized borrowing cost (24,000,000 x 6.75% x 8/12) 1,080,000
2.
Actual interest incurred (48,000,000 x 6.75%) 3,240,000
Less: Capitalizable borrowing cost 1,080,000
Interest expense 2,160,000
Problem 25-11
1.
Average expenditure 3,000,000
Less: Applicable to specific borrowing 2,200,000
Applicable to general borrowing 800,000
Interest on specific loan (2,200,000 x 10%) 220,000
Less: Interest income 45,000
Interest on specific borrowing 175,000
Specific borrowing 175,000
General borrowing (800,000 x 9%) 72,000
Capitalizable borrowing cost 247,000
2.
Interest on specific loan 175,000
Interest on general loan (2,500,000 x 9%) 225,000
Actual interest incurred 400,000
Less: Capitalized borrowing cost 247,000
Interest expense 153,000
Problem 25-12
Principal Borrowing cost
12% 20 year bond 30,000,000 3,600,000
8% 5 year note 10,000,000 800,000
40,000,000 4,400,000
Capitalization rate (4,400,000/40,000,000) 11%
Average expenditure (30,000,000/2) 15,000,000
Less: Applicable to specific borrowing 10,000,000
Applicable to general borrowing 5,000,000
Interest on specific loan (10,000,000 x 10%) 1,000,000
Less: Interest income 100,000
Interest on specific borrowing 900,000
Specific borrowing 900,000
General borrowing (5,000,000 x 11%) 550,000
Capitalizable borrowing cost 1,450,000
Interest on specific borrowing 900,000
Interest on general borrowing (40,000,000 x 11%) 4,400,000
Actual interest incurred 5,300,000
Less: Capitalized borrowing cost 1,450,000
Interest expense 3,850,000
Problem 25-13
Expenditure Fraction Average
Jan. 1 2,000,000 12/12 2,000,000
July 1 4,000,000 6/12 2,000,000
November 1 6,000,000 2/12 1,000,000
12,000,000 5,000,000
Average expenditure 5,000,000
Less: Applicable to specific borrowing 3,000,000
Applicable to general borrowing 2,000,000
Specific borrowing (3,000,000 x 10%) 300,000
General borrowing (2,000,000 x 12%) 240,000
Capitalizable borrowing cost 540,000
Expenditure 12,000,000
Add: Capitalized borrowing cost 540,000
Total cost 12,540,000
Problem 25-14
Expenditure Fraction Average
Jan. 1 2,000,000 12/12 2,000,000
March 31 1,000,000 9/12 750,000
September 30 3,000,000 3/12 750,000
6,000,000 3,500,000
Principal Borrowing cost
10% bank loan 3,000,000 300,000
2% long term loan 5,000,000 600,000
8,000,000 900,000
Capitalization rate (900,000/8,000,000) 11.25%
Average expenditure 3,500,000
Less: Applicable to specific borrowing 2,000,000
Applicable to general borrowing 1,500,000
Specific borrowing (2,000,000 x 12%) 240,000
Less: Interest income 10,000
Interest on specific loan 230,000
Interest on specific loan 230,000
General borrowing (1,500,000 x 11.25%) 168,750
Capitalizable borrowing cost 398,750
Expenditure 6,000,000
Add: Capitalized borrowing cost 398,750
Total cost 6,398,750