During the year ended 31 December 2016, XYZ Ltd started the construction of its office building. It is expected that the construction will take three years to complete. On 1 February 2016, XYZ Ltd borrowed $850,000 at 6% per annum specifically to finance this construction project. Furthermore, XYZ has had the following general borrowings throughout the year 2016:

	Loan Principal $000	Interest for the year $000
Loan A	10,000	1,000
Loan B	8,000	720
Loan C	5,000	430

XYZ Ltd incurred the following expenditures in 2016 for this project:

	$000
1 March 2016	1,500
1 July 2016	2,400
1 December 2016	1,800

The accounting policy of XYZ Ltd requires the company to use up specific borrowings before using general borrowings to finance its projects.

Required:

a Determine the capitalization rate for the general borrowings. Show your workings. (5 marks)

b Calculate the interest eligible for capitalization on the construction project as at year end 31 December 2016 and journalize the required entries. Show your workings. (12 marks)

c What disclosures should be prepared for borrowing costs under HKAS 23 (Revised)? (5 marks)

d Suppose the construction work was suspended for two months in 2016 due to an industrial accident. How should XYZ Ltd account for the borrowing costs? (3 marks)