Compounding of interest Paper Ltd has a 31 December financial year end. Paper Ltd is going to build a new factory at a cost of R1 000 000. The loan facility was approved by Red Bank on 1 January 20.20 and will be advanced as needed by Paper Ltd, to pay construction costs. The loan carries interest at 12% per year and Red Bank compounds interest annually on 31 December. The interest and capital will be repaid as one payment on 31 December 20.23. The activities relating to the construction started on 1 March 20.20. Red Bank paid the following invoices on behalf of Paper Ltd to the construction company: Invoice number INV1 INV2 INV3 Date of payment Amount 1 March 20.20 30 June 20.20 R 200 000 R 500 000 31 October 20.20 R 300 000 R1 000 000 The new factory was complete and ready for use on 31 October 20.20. The new factory will be depreciated over 10 years, with an estimated residual value of R200 000. REQUIRED (a) Calculate the total finance costs for Paper Ltd for the year ended 31 December 20.20. (b) Calculate the borrowing costs to be capitalised to the factory for Paper Ltd, for the year ended 31 December 20.20. (c) Calculate the depreciation expense for the new factory for the year ended 31 December 20.20.