QUESTION THREE Payment Date Amount (GHC'000) 1 January 2011 1,000 On 1 January 2011, Godson Ltd entered into a GHC11,000,000 contract for the construction of an office complex in Kumasi. The building...

QUESTION THREE


Payment Date
Amount (GHC'000)

1 January 2011 1,000

On 1 January 2011, Godson Ltd entered into a GHC11,000,000 contract for the construction of an office complex in Kumasi. The building was completed at the end of December 2011. During the period, the following payments were made to the contractor;

31 March 2011 3,000

30 September 2011 6,000

31 December 2011
1,000

Total
11,000

Godson's borrowings as at its year end of 31 December 2011 were as follows ;

• 10% 4 years Loan Note with simple interest payable annually, which relates specifically to the building project; debts outstanding at 31 December 2011 amounted to GHC3,500,000. Interest of GHC325,000 was incurred on these borrowing during the year, and interest income of GHC100,000 was earned on these funds while they were held in anticipation of payment.


• 12.5% Five-year Loan Note with Simple interest payment annually; debt outstanding at 1 January 2011 amounted to GHC5,000,000 and remained unchanged during the year.


• 10% Five year Loan Note with simple interest payable annually; debt outstanding at 1 January 2011 amount to GHC7,500,000 and remained unchanged during the year.

Required:

Calculate the Borrowing cost to be Capitalized. (Interest Expense are the only Borrowing cost)