Question 1

a. On 1 May 2017, Ali Ltd received a loan of RM4,000,000 from the bank with an annual interest rate of 2.5%. The purpose of this loan is to provide funds for the construction of the manufactory. The project started on 1 June 2017. Ali Ltd temporarily invested RM1,600,000 in borrowed funds in June and July 2017, with an annual interest rate of 1.5%. For the year ended 31 December 2017, which borrowing costs can be capitalized?

Notes:

Assuming that all interest was paid. (8 marks)

b. Ali Ltd had the following loans in place at the beginning and end of 2018:

	1/1/2018	31/12/2018	Remarks
	RM	RM
Bank loan, 6% p.a.	0	400,000	Note 1
Bank loan, 8% p.a.	260,000	260,000	Note 2
Debenture stock, 5.5% p.a.	100,000	100,000	Note 2

Notes:

1. It was taken in July 2018 to finance the construction of a new production hall (construction began on 1 March 2018).

2.They were taken for no specific purpose and Ali Ltd used them to finance general spending and the construction of a new machinery. Ali Ltd used RM60,000 for the construction of the machinery on 1 February 2018 and RM50,000 on 1 September 2018.

Required:

What borrowing cost should be capitalized for the new machinery for the year ended 31 December 2018? (12 marks)