1.Here the project is financed by 1.Construction loan (specific project realated)
2. Short term and long term loans (general loans)
Given ,the Weighted average amount of accumulated expenditure is $6,840,000
Out of the $6,840,000(Weighted-average), $3,800,000 is financed by Construction loan (specific loan). The rest i.e. $3,040,000 is financed out of the general loans. The interest rate on Construction loan (specific loan) is 12% while the weighted interest rate on the general loans is calculated below.
|Weighted-average Interest Rate =||$475,000||= 10.41%|
The above calculations furnish us with all the data needed to arrive at an estimate of avoidable interest.
This $772,464 is the amount of interest that could have been avoided.
This much interest can be capitalized provided it doesn’t exceed the actual interest expense for the period.
2.Straight line depreciation is a common method of depreciation where the value of a fixed asset is reduced gradually over its useful life..
Depreciation under Straight Line Method = Initial cost of the asset less the estimated salvage value / estimated full useful life( in years)
here, the cost of the project = $9,880,000, useful life= 30 years, salvage value = $570,000
So Depreciation is 9,880,000 - 570,000 / 30 = $310,333..33 or $310,333 (rounded off).
Hope you are satisfied with the answers.Please share your feedback.Thank you.