BILDA S. A., a hypothetical company, borrows €1,000,000 at an interest rate of 10 percent per year on 1 January 2010 to finance the construction of a factory that will have a useful life of 40 years. Construction is completed after two years, during which time the company earns €20,000 by temporarily investing the loan proceeds.

1. What is the amount of interest that will be capitalized under IFRS, and how would that amount differ from the amount that would be capitalized under U.S. GAAP?

2. Where will the capitalized borrowing cost appear on the company’s financial statements?