Problem 25-10 & 25-11

Problem 25-10 (IFRS) Ultimate Company decided to construct a tunnel that will link two sides of the village separated by a natural disaster. The tunnel would take two years to build and the total capital outlay needed for the construction would not be less than P20,000,000. To allow itself a margin of safety, the entity borrowed P25,000,000 from three sources and used the extra P5,000,000 for working capital purposes. Bank term loan 7% Institutional borrowing 5,000,000 8% 10,000,000 Corporate bonds 9% 10,000,000 In the first phase of the construction of the tunnel, there were idle funds of P10,000,000 which the entity invested for a period of six months. Income from this investment was P500,000. What amount of borrowing cost should be capitalized as cost of the asset? a. 4,100,000 b. 3,280,000 . 3,200,000 d. 2,780,000 Problem 25-11 (LAA) Moses Company borrowed P4,000,000 on a 10% note payable to finance a new warehouse which the entity is constructing for own use. The only other debt of the entity is a P6,000,000, 12% mortgage payable on an office building. At the end of the current year, average accumulated expenditures on the new warehouse totaled P4, 750,000. What amount of interest should be capitalized for the current year? a. 400,000 b. 475,000 c. 490,000 d. 522,500