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creditfigaro
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| Posted: 16 Apr 2009 at 01:17 | IP Logged
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@divyagovil1
Don't forget the 360K expenditured for the land at the beginning of the construction.
Also, I don't think it would be weighted average just for that period, since it asks for the whole year.
Regardless, this seems like there is something wrong with the question, as there is little indication as to the specifics of whether the expenditures at the dates are accumulated or just expenditures. Not only that, isn't "expenditures" a governmental accounting term?
Did they really blow 240,000 clams on day one? What the heck did they buy? And is that note payable REALLY outstanding as of 2004? I mean, it matured already at the beginning of the year, so wouldn't that mean that it wasn't outstanding as of the 12/31/04 B/S date?
I remember going through my homework problems in becker and them mentioning that some of the exam questions weren't "perfect" but this is absolutely ridiculous.
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divyagovil1
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| Posted: 16 Apr 2009 at 09:26 | IP Logged
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creditfigaro,per my understanding, $360,000 is a part of the land cost that is capitalized separately and not the part of building construction cost.
Plus, whenever we capitalize the interest, we always look at the construction period. In this case, it is 4 months.
I may agree that there is something wrong with the question.. letz see what taxygood has to say !
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rchxenson
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| Posted: 16 Apr 2009 at 09:49 | IP Logged
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divyagovil1 wrote:
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creditfigaro,per my understanding, $360,000 is a part of the land cost that is capitalized separately and not the part of building construction cost.
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I agree with this comment, reluctantly, I included this as one of my possible senarios, I also included capitalizing intrest on the 200,000 loan, I also tried not using the full cost of construction, but nothing worked for me.
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creditfigaro
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| Posted: 16 Apr 2009 at 11:24 | IP Logged
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xD oh yeah.
That's called opening your mouth and letting bad things fall out...
... WAIT A MINUTE ...
It's based on Weighted Average Accumulated Expenditures, BUT it cannot exceed TOTAL interest cost for the period. One would compute interest cost on the full amount of the debt (or implied debt) implemented in construction!
I guess, even if the company didn't have any borrowings against the expenditures in the first place, the expenditures represent the interest lost that could have been avoided (or investments enjoyed somewhere else) had you not built the building: hence, "Avoidable Interest"
There are only 680K of borrowings available to allocate interest cost for the period. Meaning: you can't add the excess expenditures over borrowings into the capitalized interest calculation.
So, I guess if you were to calculated capitalized interest it would be a weighted average rate (about 11.11%) times the weighted average expenditures, but no more than actual interest cost that was avoidable. This implies that all of the proceeds from the loans were used in the construction (and then some), even if they weren't specifically FOR the construction.
This solution assumes that the figures quoted as expenditures are cumulative figures.
SO, the calculation is:
240,000+336,000+600,000+680,000 => 1,856,000/4 (months) = 464,000
I would guess that you would then take the weighted average interest rate times this value to give you capitalized interest.
I hope all that makes sense. It's the only calculation that I have come up with that yields any of the four choices and is consistent with the materials.
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taxygood
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| Posted: 22 Apr 2009 at 00:10 | IP Logged
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This is from my teacher
($600,000 × 4/12) + ($336,000 × 3/12) + ($600,000 × 2/12) +
($960,000 × 1/12) = $464,000.
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Topic: The weighted-average accumulated expendit
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