


1) Avoidable interest on construction loan = Loan Amount*Loan rate
= $5,000,000*12% = $600,000
Calculation of Weighted Average Interest Rate on General Loan (Amounts in $)
Loan  Amount (A)  Interest rate (B)  Interest (A*B) 
Short term loan  3,500,000  10%  350,000 
Long term loan  2,500,000  11%  275,000 
Total  6,000,000  625,000 
Weighted Average Interest rate = $625,000/$6,000,000 = 10.42%
Avoidable Interest on Remaining Expenditure
.= (Weighted Average Accum. Exp  Construction Loan)*Weighted Avg interest rate
= ($9,000,000  $5,000,000)*10.42% = $416,800
Total Avoidable Interest = $625,000+$416800 = $1,041,800
Therefore avoidable interest is $1,041,800.
2) Total cost of building capitalized = $13,000,000+$1,041,800
= $14,041,800
Depreciation Expense = (Cost  Salvage Value)/Useful Life
= ($14,041,800  $750,000)/30 yrs = $443,060 per year
Therefore depreciation expense per year is $443,060.
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