Example 7: Specific loans
Dr Bank 500 000
Cr Liability - Loan 500 000
Dr Call account - 500 000
investment
Cr Bank 500 000
Dr Finance cost 50 000
Cr Liability / Bank 50 000
Dr Bank 24 000
Cr Interest income 24 000
Dr Borrowing costs – 50 - 24 26 000
building
Cr Finance cost 26 000
Example 8: Specific loans
Date Description Calculation Amount
1 Jan – 31 Interest expense 500 000 *10% 50 000
Dec
1 Jan – 1 Interest income 500 000 * 6% * 2/12 (5 000)
March
1 Mar – 31 Interest income 100 000 * 6% (5 000)
Dec *10/12
Borrowing costs 40 000
Example 9: Specific loans
Date Description Calculation Amount
1 Jan – 31 Interest expense 500 000 *10% 50 000
Dec *12/12
1 Jan – 1 Interest income 500 000 * 6% * 2/12 (5 000)
March
1 Mar – 31 Interest income (500 000 + (15 000)
Dec 100 000)/2 =
300 000 *6%
*10/12
Borrowing costs 30 000
to be capitalised
Average calculation is this;
Opening balance at 1 March 20X5 – R500 000 (because we had not yet made
any payment)
Closing balance at 31 Dec 20X5 – R100 000 (500 000 o/B – 400 000
expenditure)
Average is the half of your total figures = 600 000/2 = R300 000
Interest-related Journals
Dr Finance cost 50 000
Cr Liability / Bank 50 000
Dr Bank 15 000 + 5 20 000
000
Cr Interest income 20 000
Dr Borrowing costs – 50 000 – 20 30 000
building 000
Cr Finance cost 30 000
Example 10: Specific loans
Date Description Calculation Amount
1 Jan – 31 Jan Interest expense 500 000 *10% *1/12 4 167
1 Feb – 31 Interest expense 500 000 *10% 45 833
Dec *11/12
1 Jan – 1 Feb Interest income 500 000 * 6% *1/12 2 500
1 Feb – 1 Mar Interest income 500 000 * 6% *1/12 2 500
1 Mar – 31 Interest income 100 000 * 6% * 5 000
Dec 10/12
Borrowing costs using relevant interest
Interest expense 45 833
Interest income (7 500)
Borrowing costs 38 333
Example 9: Specific loans
Date Description Calculation Amount
1 Jan – 31 Interest expense 500 000 * 10% 50 000
Dec *12/12
1 Jan – 1 Interest income 500 000 *6% *2/12 (5 000)
March
1 Mar – 31 Interest income (500 000 + (15 000)
Dec 100 000)/2 =
300 000 * 6% *
10/12
Borrowing costs 30 000
to be capitalised
Average calculation is this;
Opening balance at 1 March 20X5 – R500 000 (because we had not yet made
any payment)
Closing balance at 31 Dec 20X5 – R100 000 (500 000 o/B – 400 000
payments)
Average is the half of your total figures = 600 000/2 = R300 000
Interest-related Journals
Dr Finance cost 50 000
Cr Liability / Bank 50 000
Dr Bank / Receivable 15 000 + 5 20 000
000
Cr Interest income 20 000
Dr Borrowing costs – 50 000 – 20 30 000
building 000
Cr Finance cost 30 000
Example 10: Specific loans
Date Description Calculation Amount
1 Jan – 31 Jan Interest expense 500 000 *10% *1/12 4 167
1 Feb – 31 Interest expense 500 000 *10% 45 833
Dec *11/12
1 Jan – 1 Feb Interest income 500 000 *6% *1/12 2 500
1 Feb – 1 Mar Interest income 500 000 * 6% *1/12 2 500
1 Mar – 31 Interest income 100 000 * 6% 10/12 5 000
Dec
Borrowing costs using relevant interest
Interest expense 45 833
Interest income 5 000 + 2 500 (7 500)
Borrowing costs 38 333
Example 11: General loan
Required A
The capitalisation rate: the capitalisation rate is weighted average
interest rate on the general borrowing during that period:
Capitalisation rate
Interest incurred on general borrowings during the period
Weighted average total general borrowings outstanding during the
period
Weighted average Calculations Interest
outstanding incurred
borrowing
Existing loan 500 000 500 000 *7% *12/12 35 000
Additional 600 000 600 000 *12,5% * 75 000
loan 12/12
Total interest 110 000
1 100 000
110 000/ 1 100 000 = 10%
Required B:
Dr Cr Description Calculation Amount Amount
(Dr) (Cr)
Capitalising actual cost on the building, except for borrowing
cots
Dr Building 50 000 * 7 350 000
1 January – 31 months
July
Dr Building 30 000 * 4 120 000
1 August – 30 Month
November
Dr Building 100 000 *1 100 000
December month
Cr Bank 570 000
Journalising the finance cost before it is capitalised
Dr Finance cost 110 000
Cr Liability / Bank 110 000
Capitalising the borrowing cost
Dr Building – 28 208
borrowing costs
Cr Finance cost 28 208
Borrowing cost calculation
Borrowing costs to be capitalised on general loans are measured as:
expenditure are incurred
multiplied by the capitalisation rate.
The finance costs eligible for capitalisation for are calculated as follows:
o finance costs eligible for capitalisation = Expenditure on the QA x
Capitalisation rate
o the expenditure on the qualifying asset (QA): For practical
purposes, if the expenditure was not incurred on the first day of a
period but is incurred evenly over this period (e.g. a month), this
expenditure may need to be averaged.
Expenditure on QA (average)
expenditure incurred evenly during period
2
Period Average Calculation Borrowing
expenditure cost
incurred
1 January – 31 50 000*7 = 175 000 * 10% 10 208
July (7 350 000 *7/12
months) 350 000/2 = 175
000
After July 31 350 000 350 000 *10% 14 583
*5/12
1 August – 30 30 000 * 4 = 60 000 *10% * 2 000
November (4 120 000 4/12
month) 120 000/2 = 60
000
After 120 000 120 000 *10% 1 000
November *1/12
1 December – 100 000 *1 = 50 000 * 10% 417
31 December 100 000 *1/12
(1 month) 100 000/2 = 50
000
Total borrowing costs 28 208