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Question #3 - IAS 23 Borrowing Costs On 1 January 2020 Allan Lee Co. borrowed $20 million to finance the production of two assets, both
Question #3 - IAS 23 Borrowing Costs On 1 January 2020 Allan Lee Co. borrowed $20 million to finance the production of two assets, both of which were expected to take a year to build. Production started at the beginning of 2020. The loan facility was drawn down on 1 January 2020, and was utilised as follows, with the remaining funds invested temporarily: 1 January 2020 1 July 2020 Asset X $m 4.0 7.0 Asset Y $m 6.0 3.0 The loan rate was 10% and Allan Lee can invest surplus funds at 8%. Required: a) Ignoring compound interest, calculate the borrowing costs which may be capitalized for each of the assets and consequently the cost of each asset as at 31 December 2020. b) Prepare the journal entries in respect of the borrowing costs capitalization. Show your workings clearly
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