Download presentation
Presentation is loading. Please wait.
Published byDamian Wheeler Modified over 6 years ago
1
Gabriela H. Schneider, CMA; Grant MacEwan College
INTERMEDIATE ACCOUNTING Sixth Canadian Edition KIESO, WEYGANDT, WARFIELD, IRVINE, SILVESTER, YOUNG, WIECEK Prepared by: Gabriela H. Schneider, CMA; Grant MacEwan College 2
2
Interest Capitalization
C H A P T E R 11 Appendix 11A Illustration of Interest Capitalization
3
Learning Objectives Calculate the amount of capitalizable interest on projects involving expenditures over a period of time and borrowings from different sources at varying rates.
4
Shalla Corporation: Example
Given: November 1, 2001 contracts with Pfeifer Construction Co. Ltd. to construct a $1.4 million building (on land costing $100,000) First payment made by Shalla to Pfeifer includes the payment for the land Payments made in 2002: January 1 $ 210,000 December 31 $ 450,000 March 1 $ 300,000 Total $1,500,000 May 1 $ 540,000 Building completed December 31, 2002
5
Shalla Corporation: Example
Debt outstanding at December 31, 2002 Specific Construction Debt: $750,000 15%, three-year note Other Debt: 10%, five-year note $550,000 12%, ten-year bonds $600,000
6
Shalla Corporation: Example
Weighted-Average Accumulated Expenditures: Jan. 1 $ 210, /12 = $210,000 Mar , /12 = 250,000 May , /12 = 360,000 Dec , /12 = WAAE $820,000 Note: The land payment is included in the WAAE. Next step: avoidable interest and appropriate interest rate calculation
7
Shalla Corporation: Example
Weighted-Average Interest Rate = Total Interest Total Principal Do not include Construction Specific Debt $127,000* ($550,000 + $600,000) = 11.04% * (550,000 X .10) + (600,000 X .12) The rates of interest for the avoidable interest Calculation are then: Construction Note: 15% All Other Amounts: 11.04%
8
Shalla Corporation: Example
Avoidable Interest: WAAE up to Construction Specific Debt X Rate + Any residual amount of WAAE X Rate Avoidable Interest: $750,000 X 15% = $112,500 70,000 X 11.04% = ,728 $820, $120,228 This amount is then compared to the actual interest paid.
9
Shalla Corporation: Example
Actual Interest: $750,000 X 15% = $112,500 550,000 X 10% = ,000 600,000 X 12% = ,000 Total Actual Interest Paid $239,500 Avoidable Interest = $120,228 Actual Interest = $239,500 The lesser of these two amounts is capitalized Entry: Dr. Building 120,228 Cr. Interest Expense 120,228
10
COPYRIGHT Copyright © 2002 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by CANCOPY (Canadian Reprography Collective) is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his / her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
Similar presentations
© 2025 SlidePlayer.com. Inc.
All rights reserved.