On 1 October 2017, Bush Co. borrowed $6 million for a term of one year, exclusively to finance the construction of a new piece of production equipment. The interest rate on the loan is 6% and is payable on maturity of the loan. The construction commenced on 1 November 2017 but no construction took place between 1 December 2017 and 31 January 2018 due to employees taking industrial action. The asset was available for use on 30 September 2018 having a construction cost of $6 million. What is the carrying amount of the production equipment in Bush Co’s statement of financial position as at 30 September 2018? A $5,016,000 B $6,270,000 C $6,330,000 D $6,360,00
On 1 October 2017, Bush Co. borrowed $6 million for a term of one year, exclusively to finance
the construction of a new piece of production equipment. The interest rate on the loan is 6% and
is payable on maturity of the loan. The construction commenced on 1 November 2017 but no
construction took place between 1 December 2017 and 31 January 2018 due to employees taking
industrial action. The asset was available for use on 30 September 2018 having a construction
cost of $6 million.
What is the carrying amount of the production equipment in Bush Co’s statement of financial
position as at 30 September 2018?
A $5,016,000
B $6,270,000
C $6,330,000
D $6,360,00
Borrowing cost i.e. interest cost where loan is used to build any fixed assets , has to be capitalized if fixed assets is a qualifying assets.
Qualifying assets means a asset which take substantial period of time to build (generally one year).
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