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Q3-(25 Marks) A)- Gulf Construction has the following loan arrangements as at Ist January 20191: Average Loan 7%Loan notes 55,000,000 8% Loan notes 110,000,000 12%
Q3-(25 Marks) A)- Gulf Construction has the following loan arrangements as at Ist January 20191: Average Loan 7%Loan notes 55,000,000 8% Loan notes 110,000,000 12% Debentures 85,000,000 10% Bank Loan 150,000,000 On the January 1, 2019, the company commenced the construction of a new factory building. The construction of the factory will cost BHD 100,000,000 and the company funded the construction with the existing borrowings. The factory was completed on August 31, 2019 but was not available for use until December 31, 2019 as a result of minor modification. During the construction period, active work was interrupted and the building construction was stopped for two months as a result of adverse weather conditions. Required 1. Calculate the Weighted average capitalization rate. 2- Calculate the borrowing cost to be capitalized. 3. Determine the amount cost of the building to be recognized upon initial recognition. B). It is argued that "the borrowing cost on inventories can be capitalized". Do you agree? Justify your
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