Camerata Construction borrowed €19,000,000 for 10 years at 6% specifically to modernize its operations with new equipment. The average rate of interest on Camerata's debt after considering the most recent loan was 5.5%. What rate of interest should be used for capitalizing the borrowing costs on the new equipment under IAS 23?

Question

Quizplus · Accepted Answer

According to IAS 23, borrowing costs should be capitalised using the same rate of interest as the borrowing rate. Camerata Construction borrowed specifically for the acquisition of new equipment at a rate of 6%, which is higher than the average rate of interest of 5.5% after considering the most recent loan. Therefore, the rate of interest to be used for capitalising the borrowing costs on the new equipment must be 6%.

Camerata Construction Borrowed €19,000,000 for 10 Years at 6% Specifically