The following three situations involve the capitalization of borrowing costs for public companies following IFRS.

Situation 1

On January 1, 2020, Oksana Inc. signed a fixed-price contract to have Builder Associates construct a major head office facility at a cost of $4 million. It was estimated that it would take three years to complete the project. Also, on January 1, 2020, to finance the construction cost, Oksana borrowed $4 million that is repayable in 10 annual instalments of $400,000, plus interest at the rate of 10%.

During 2020, Oksana made deposit and progress payments totalling $1.5 million under the contract; the weighted-average amount of accumulated expenditures was $800,000 for the year. The excess amount of borrowed funds was invested in short-term securities, from which Oksana realized investment income of $25,000.

Situation 2
During 2020, Midori Ito Corporation constructed and manufactured certain assets and incurred the following borrowing costs in connection with these activities:

Borrowing Costs Incurred
Warehouse constructed for Midori Ito’s own use ............................. $30,000
Special-order machine for sale to unrelated customer,
produced according to customer’s specifications ................................. 9,000
Inventories routinely manufactured, produced on a repetitive
basis, that require many months to complete ...................................... 8,000

Situation 3
Fleming Inc. has a fiscal year ending April 30. On May 1, 2020, Fleming borrowed $10 million at 11% to finance construction of its own building. Repayments of the loan are to begin the month after the building’s completion. During the year ended April 30, 2021, expenditures for the partially completed structure totalled $7 million. These expenditures were incurred evenly throughout the year. Interest that was earned on the part of the loan that was not expended amounted to $450,000 for the year.

Instructions

a. For situation 1, what amount should Oksana report as capitalized borrowing costs at December 31, 2020?

b. For situation 2, assuming the effect of capitalization of borrowing costs is material, what is the total amount of borrowing costs to be capitalized?

c. For situation 3, how much should be shown as capitalized borrowing costs on Fleming’s financial statements at April 30, 2021?