Financial Accounting and Reporting AIRIVERA

Borrowing Cost PAS 23

P1-18
Specific Borrowing
1. On January 1, 20x1, ALSU Co. borrowed P20M to finance the construction
of a new building. Interest is payable on the loan at 8%. Stage
payments wre dure throughout the construction period and therefore
excess funds were invested during that period. By the end of the
project on December 31, 20x1, investment income of P600,000 had been
earned. How much is the capitalized borrowing cost?

General Borrowing
2. On January 1, 20x1, BLSU Co. had the following borrowings made for
general purposes and a part of the proceeds was used to finance the
construction of a qualifying asset:

Principal
12% short-term note 40,000,000
14% bank loan (3-year) 72,000,000
16% note payable (5-year) 88,000,000

The construction of the qualifying asset was started on immediately

and expenditures incurred on the qualifying asset were as follows:

Jan 1 19,200,000
March 31 8,800,000
July 30 14,000,000
October 1 21,600,000
December 31 1,200,000

How much is the capitalizable borrowing cost?

General Borrowing (expenditures incurred evenly)

3. On January 1, 20x1, CLSU Co. had the following borrowings made for
general purposes and a part of the proceeds was used to finance the
construction of a qualifying asset:

Principal
12% short-term note 40,000,000
14% bank loan (3-year) 72,000,000
16% note payable (5-year) 88,000,000

The construction started on January 1 and was completed on December

20x1. The total cost of construction was P72M which was incurred
evenly during the year. How much is the capitalizable borrowing cost?

Specific and General Borrowing

4. On January 1, 20x1, DLSU Co. contracted for the construction of a
building for P80M on a land that it had previously purchased. The
building was completed on December 20x1. The following payments were
made to the contractor:

Payment Date Amount

January 1, 20x1 8,000,000
March 31, 20x1 24,000,000
September 30, 20x1 40,000,000
December 31, 20x1 8,000,000

The following represents the borrowings of DLSU Co. as of December

31, 20x1:

Borrowing Cost PAS 23

Albert I. Rivera, CPA, MBA, CRA 1 of 3
 a. 10%, P28M, 4-year note dated January 1, 20x1 with simple interest
payable annually, specifically borrowed to finance the construction
project. Interest income earned on the temporary investment of the
proceeds is P480,000
b. 12.5%, P40M, 10-year note dated January 1, 20x1 with interest
payable annually
c. 10%, P60M, 10-year note dated December 31, 19x9 with interest
payable annually

How much is the capitalizable borrowing cost?

Specific borrowing used for general purposes

5. ELSU Co. started construction of a new office building on January 1,
20x1. Funds borrowed specifically for the construction of building is
P8M accruing interest at 10% annually. However, a part of the
borrowing is used for other business requirements during the year.
Investment income earned on temporary investments of proceeds from
the borrowing amounted to P48M which was received in cash on September
1, 20x1. Expenditures on the building amounted to P7.2M which was
incurred evenly during the year. How much is the capitalizable
borrowing cost?

Limit on average expenditures

6. FLSU Co. started construction of a qualifying asset for GLSU Co. on
January 1 20x1. The following were expenditures incurred on the
construction.

Date Expenditures
January 1, 20x1 4,000,000
May 1, 20x1 1,800,000
December 1, 20x1 2,880,000

a. Included in the January 1, 20x1, expenditures is cost of materials

purchased on account for P400,000. The account was settled on July
1, 20x1.
b. Included in May 1, 20x1, expenditures is P40,000 cost of materials
obtained in exchange for old equipment.

Progress billings during the year are as follows:

Date of Billing Amount Billed Date billings were collected
April 1, 20x1 800,000 June 1, 20x1
September 1, 20x1 2,400,000 November 1, 20x1

a. Payments on billings are subject to 10% withholding by GLSU Co.

b. FLSU Co. determined the capitalization rate to be 10%

How much is the capitalizable borrowing cost?

Extended period of construction

HLSU Co. started construction of a qualifying asset for ILSU Co. on
January 1, 20x1. The following were expenditures incurred on
construction.

20x1 Expenditures
January 1, 20x1 4,000,000
May 1, 20x1 1,800,000
December 1, 20x1 2,880,000

20x2 Expenditures
January 1, 20x2 3,600,000
August 30, 20x2 1,200,000

Borrowing Cost PAS 23

Albert I. Rivera, CPA, MBA, CRA 2 of 3
 20x3 Expenditures
July 1, 20x3 2,400,000
August 30, 20x2 1,200,000

HLSU Co. determined the capitalization rate to be 10%. The construction

of the qualifying asset was substantially completed on September 30,
20x3.

7. How much is the capitalizable borrowing cost in 20x1?

8. How much is the capitalizable borrowing cost in 20x2?
9. How much is the capitalizable borrowing cost in 20x3?
10. How much is the total cost of the constructed qualifying asset on
September 30, 20x3?

Borrowing Cost PAS 23

Albert I. Rivera, CPA, MBA, CRA 3 of 3