Chase up is public listed company in Pakistan Stock exchange. A few years back chase up started to build a new store on bosan road multan. Details about the construction of new store in multan city are as follows: Chase up issued unsecured loans on 1 april 2008 amounting $10 million with a nominal interest rate of 6%. These unsecured loans are redeemable at a premium with effective finance cost of 7.5% annually. This loan was particularly obtained to finance the nee building of new chase up store which qualify the requirements of qualifying asset prescribed in IAS-23. Construction of the store commenced on 1 may 2008 and it was completed and ready for use on 28 February 2009. But did not open for trading until 1 april 2008. Required: a) what is the total of finance costs which can be capitalized in respect of chase up new store? b) Rather than take out a loan specifically for the new store chase up could have funded the store from existing borrowing whoch are: i. $50 million ( 10% bank loan) ii. $30 million ( 8% bank loan) In this cse it would have applied a 'capitalization rate' to the expenditure on the asset. What would the rate have been?
Chase up is public listed company in Pakistan Stock exchange. A few years back chase up started to build a new store on bosan road multan. Details about the construction of new store in multan city are as follows:
Chase up issued unsecured loans on 1 april 2008 amounting $10 million with a nominal interest rate of 6%. These unsecured loans are redeemable at a premium with effective finance cost of 7.5% annually. This loan was particularly obtained to finance the nee building of new chase up store which qualify the requirements of qualifying asset prescribed in IAS-23. Construction of the store commenced on 1 may 2008 and it was completed and ready for use on 28 February 2009. But did not open for trading until 1 april 2008.
Required:
a) what is the total of finance costs which can be capitalized in respect of chase up new store?
b) Rather than take out a loan specifically for the new store chase up could have funded the store from existing borrowing whoch are:
i. $50 million ( 10% bank loan)
ii. $30 million ( 8% bank loan)
In this cse it would have applied a 'capitalization rate' to the expenditure on the asset. What would the rate have been?
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