Q1. Novellos business has grown significantly over recent years. To manage the increased demand, it constructed a new factory with high-tech manufacturing machinery. Machinery: The costs incurred in setting up the new machinery are as follows:

Planning and design fees 10,000

Construction costs 180,000

Assembly and installation of equipment 45,000

Testing of equipment 8,000

Advertising of new products being manufactured 2,000

Total cost incurred 245,000

a) Calculate the cost of the machinery to be recorded as Property, plant and equipment.

Factory: Novello financed the construction of the factory using existing general borrowings:

5% bank loan 3m

4.5% bank loan 3m

4% bank loan 2m

Construction of the factory began on 1 February 2021. Novello incurred 1m on that date, 3m on 1 December 2021 and a further 2m on completion on 30 April 2022.

b) Compute the weighted average cost of borrowing for these general borrowings. Answer to two decimal places

c) Calculate how much of the borrowing costs to include in the cost of the factory. Answer to the nearest 000