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Acc 422

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Acc/422: P10-6 (LO1,3) (Interest During Construction)
Balance as at December 31, 2017
a. Land
Acquisition costs + Surveying costs + title insurance policy + Demolition costs
Balance: $139,000 + $2,000 + $4,000= $145,000
b. Buildings
Demolition costs + Architectural costs + Building Permits + Interest expense – receipt from
disposal of materials
Interest expense: $600,000 * (8/12 *100) = $4,000
This is the interest expense for one month. This amount will be capitalized because the
building is in the construction phase.
Total balance: $3,000 + $30,000 + $3,000 + $4,000 - $1,000= $39,000
c. Interest Expense = Nil
The capitalized amount of $4,000 for the one month will be written off as part of the depreciation
over the useful life of the building and not over the term of the loan, hence the zero balance.
Balance as at December 31,2018
Land = $145,000
It will be the same as the opening balance for the beginning of the period
Buildings
Opening balance + Payments to contractor in 2018 + Interest expense
Interest expense = $600,000 * (8% * 6/12) = $24,000
The interest will be capitalized for the 6 months that the building will be in construction.
(Since the building will be completed on July 1, 2018).

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1 Acc/422: P10-6 (LO1,3) (Interest During Construction) Balance as at December 31, 2017 a. Land Acquisition costs + Surveying costs + title insurance policy + Demolition costs Balance: $139,000 + $2,000 + $4,000= $145,000 b. Buildings Demolition costs + Architectural costs + Building Permits + Interest expense – receipt from disposal of materials Interest expense: $600,000 * (8/12 *100) = $4,000 This is the interest expense for one month. This amount will be capitalized because the building is in the construction phase. Total balance: $3,000 + $30,000 + $3,000 + $4,000 - $1,000= $39,000 c ...
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