On 1 July, 2017 the company issued a 5 year 10% loan stock specifically for the construction
Question:
On 1 July, 2017 the company issued a 5 year 10% loan stock specifically for the construction of a new factory in the northern part of the country in order to meet demand from the neighbouring countries.The company contracted Africa Contractors Ltd on the same day for Shs 25 billion. However, due to the delay in approving the plan by the authorities, the construction started in October 2017.
The company paid Africa Constructors Ltd Shs 10 billion in the first phase of the construction on 1 November, 2017 and Shs 15 billion for the second phase of the construction on 1 April, 2018 as final payment.Work on the construction was suspended from January 2018 for a period of 2 months due to technical disagreements between the company and contractor.Balances on the bank accounts of the company earn interest at 5% per annum.The Director, Finance wants to know the cost of the construction.The loan financing facilities as at 1 July, 2017 were as follows:
Shs 'billion'
15 year 10% loan stock 14
210 year 9% loan stock 10
318% overdraft facility 4
Required: Account for the above transaction in the books of the company