A socially responsible multinational corporation (MNC) decided to construct a tunnel that will link two sides of the village that were separated by a natural disaster years ago. Realizing its role as a good corporate citizen, the MNC has been in this village for a couple of years exploring oil and gas in the nearby offshore area. The tunnel would take two years to build and the total capital outlay needed for the construction would be not less than $20 million. To allow itself a margin of safety, the MNC borrowed $22 million from three sources and used the extra $2 million for its working capital purposes. Financing was arranged in this way:
• Bank term loans: $5 million at 7% per annum
• Institutional borrowings: $7 million at 8% per annum
• Corporate bonds: $10 million at 9% per annum
In the first phase of the construction of the tunnel, there were idle funds of $10 million, which the MNC invested for a period of six months. Income from this investment was $500,000.
Required
If the MNC decided to opt for the “allowed alternative treatment” under IAS 23, how would it treat the borrowing costs? How would it capitalize the borrowing costs, and what would it do with the investment income?