Question

Calculating Avoidable Interest

Weighted average accumulated expenditures are $720,000 on a project for which work steadily progressed during the current year. The following debt was outstanding during the current year.

Construction loan		$180,000 at 10%
Note payable		$900,000 at 8%
Mortgage payable		$270,000 at 12%

Calculate avoidable interest for the purpose of interest capitalization.

Note: Round interest rate percentage used in your calculation to two decimal places (for example, enter 2.05 for 2.04555%).

Avoidable interest $Answer

Answer 1

Particulars	Amount	x	Interest Rate	Interest
8% Note payable	$ 900,000	x	8%	$ 72,000
12% Mortgage payable	$ 270,000	x	12%	$ 32,400
Total	$ 1,170,000	x		$ 104,400
Weigted average interest rate     = $ $ 104,400 / $ 1,170,000	8.92%
Particulars	Amount	x	Interest Rate	weighted Average Expenditure (A x B)
Construction loan	$ 180,000	x	10%	$ 18,000
Other loan ($ 720,000 (-) $ 180,000 )	$ 540,000	x	8.92%	$ 48,168
			Avoidable Interest =	$ 66,168