Question

1. Interest During Construction

   Matrix Inc. borrowed $1,000,000 at 8% to finance the construction of a new building for its own use. Construction began on January 1, 2016, and was completed on October 31, 2016. Expenditures related to this building were:

   January 1	$252,000	(includes cost of purchasing land of $150,000)
   May 1	310,000
   July 1	420,000
   October 31	276,000

   In addition, Matrix had additional debt (unrelated to the construction) of $500,000 at 9% and $800,000 at 10%. All debt was outstanding for the entire year.

   Required:

   1. Compute the amount of interest capitalized related to the construction of the building.

      $

      
      
   2. If the expenditures are assumed to have been incurred evenly throughout the year:
      
      Compute weighted average accumulated expenditures $
      
      Compute the amount of interest capitalized on the building $

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Answer 1

ANSWER

1
	Expenditure
01-Jan	252,000 * 10 /12	210000
01-May	310000 * 6/12	155000
01-Jul	420,000 * 4 /12	140000
31-Oct	276000 * 0/12	0
	Average investment	505000
2	Wrighted average accumulated expenditure
	Actual interest	Principal	Interest
	8 % construction loan	1000000	80000
	9% Long term loan	500000	45000
	10% long term loan	800000	80000
		2300000	205000
	Interest to be capitalised	40400	(505000*8%)