CASE 1:

Shawn Corporation.borrowed P1,000,000 from BPI Inc. specifically to finance the construction of its

building. The proceeds from the borrowing were received on January 2, 2020 and were supported by

a 5 year, 12% note payable. The construction commenced on July 1, 2020 and was substantially

completed by November 30, 2020. The unused proceeds from the loan were reinvested on a monthly

basis all throughout the year to earn 5% annual interest. The following were used from the proceeds

of the loan (assume at the beginning of each months)

July P100,000

August 150,000

September 300,000

October 200,000

November 150,000

Requirements:

20. How much is the capitalizable borrowing cost?

a. 50,000 c. 39,792

b. 49,792 d. 109,792

21. What is the total interest expense to be recognized for 2020?

a. 120,000 c. 70,000

b. 60,000 d. 50,000

CASE 2:

Aaron Corp. contracted Glassman Inc. on January 1, 2020 to construct building for P80,000,000 on

land Aaron Corp. purchased a couple of years back. The contract provides that Aaron Corp. is to

make five payments in 2020, with the last payment to be made upon completion. The building was

completed on November 30, 2020.

Aaron Corp. made the following payments during 2020:

January 1 P8,000,000

April 1 19,000,000

July 31 24,400,000

October 1 21,600,000

November 30 7,000,000

Aaron Corp. made the following arrangements with financing companies in 2020:

12%, P25M loan dated January 1, 2020, with interest compounded semi-annually.

Both principal and compounded accumulated interests are payable on December 31,

2021. This loan related specifically to the building project.

10%, 10-year, P35M note dated December 31, 2019, with simple interest; interest

payable annually on December 31. The loan was for general financing purposes

including the partial financing of the construction.

12%, 5-year. P40M note dated December 31, 2019, with simple interest; interest

payable annually on December 31. The loan was for general financing purposes

including the partial financing of the construction.

Requirements:

22. The amount of interest to be capitalized in 2020?

23. The amount of interest to be expense in 2020?