Question

On March 1, 2019, Asbah contracted Nabali & Fares Construction Co. to construct a building on land costing $800,000 (purchased from the contractor and included in the first payment). The construction began on the office building on March 1. The following expenditures were incurred for construction:

Date Expenditures

March 1, 2019 $ 1,200,000

May 1, 2019 1,680,000

August 1, 2019 3,000,000

September 30, 2019 4,800,000

The building was completed and ready for occupancy on September 30, 2019. To finance purchase of the land and construction of the building, $1,500,000 was borrowed on March 1, 2019 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2019 was a $1,000,000, 12%, 6-year note payable dated January 1, 2019.

The interest cost to be capitalized during 2019 is

Answer 1

	Interest amount to be capitalised upto the completion of the project
	Building completed date	September 30 -2019
	Hence interest upto 30th september can be capitalised
1st case	Interest on $ 1500000 is
	[(1500000 x 9% )/ 12 months ] x 7 months (from march to sep)
	Which is	$ 78750
2nd case	Interest on [( 1000000 x 12% ) /12 months ] x 9 months (from january to sep )
	Which is	$ 90000
	Total interest to be capitalised ( 78750+90000)	$ 168750