From the following independent events consider and determine costs to be capitalised or treated as borrowing costs to be charged to profit or loss were appropriate:

a$)$ An entity borrows $$5$ million to fund the construction of a new building. Interest is payable on the loan at $8\%.$ Stage payments were due throughout the construction period and therefore excess funds were reinvested during that period. By the end of the project, investment income of $$150,000$ had been earned and the construction took twelve months to complete. $(5$ marks$)$

b$)$ BULB Co has a bank overdraft of $$500,000$ and a loan of $$1$ million which was taken out to finance the expansion of the entity several years ago. The entity has just commissioned the construction of a new factory to expand the business. The factory will cost $$2$ million to build and this will be financed by a new loan. $(5$ marks$)$

c$)$ An entity has the following loan finance in place during the year:

$$1$ million of $6\%$ loan finance

$$2$ million of $8\%$ loan finance

It constructed a new factory which cost $$600,000$ and this was funded out of the existing loan finance. The factory took eight months to complete.

Required:

Show what borrowing costs should be capitalised. $(5$ marks$)$

On $1$ January $2001$ an entity borrowed $100000$ from ABC bank on$5\%$ interest paid annually in arrears. The principal is payable in full on the $6$th anniversary of the loan The entity's year end is $31$ June.

Determine borrowing costs for accounting year end $201/2002200320042005/2006$

Describe how borrowing costs are accounted for