Yellow Limited (Yellow), a company that prepares its financial statements to 31 December each year, is involved in the manufacture of made-to-order customised sports cars. The company commenced trading in January 2013 and has gained an excellent reputation within this specialised industry.

In January 2017, Yellow commenced a programme to extend and modernise the company’s manufacturing facilities. The programme cost €1,000,000 and Yellow financed the work through a mixture of general and specific debt. The directors estimate that 50% of the programme was financed by general debt and 50% by specific debt. Yellow’s current general borrowing rate is 10% per annum, while the specific debt carries an interest rate of 15% per annum. The programme was completed on 31 December 2017.

Requirement Explain how Yellow should account for the borrowing costs in the financial statements for the year ended 31 December 2017.