On 1 January 2017, Robinson plc (Robinson) entered into a contract with a building company to build a new administrative and visitors’ facility for the company at a cost of

€10 million. In order to finance the cost of the contract, Robinson entered into a short-term loan agreement with its bankers to borrow €10 million at an interest rate of 6% per annum for the year that it would take to build the facility. The construction of the facility is expected to be completed on 31 December 2017 and the company intends to repay the loan on the same date. As Robinson’s profits for the year ended 31 December 2017 are likely to be lower than expected, the directors wish to capitalise the loan interest paid.

Requirement Is the policy put forward by the directors of Robinson acceptable?