Problem
AA Company had the following borrowings during 2014. The borrowings were made for general purposes but the proceeds were used to finance the construction of the new building:
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Principal
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10% bank loan
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3,600,000
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12% bank loan
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6,400,000
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The construction began on January 1, 2014 and was completed on December 31, 2014. Expenditures on the building were P2,500,000 January 1, P2,500,000 on June 30 and P1,250,000 on December 31.
a) Compute for the average expenditures during the period.
b) Compute for the actual borrowing cost.
c) Compute for the capitalizable borrowing cost.
d) Compute for the cost of the new building.
e) Compute for the interest expense for 2014.