H Ltd. began the construction of a new building on 1 st April 2022. It obtained a special loan of 6,00,000 on 1 st April 2022 at an interest of 12%…

Interest amount to be capitalized Particulars ₹ Specific borrowings (₹ 6,00,000 x 12%) 72,000 Non-specific borrowings [₹ 30,35,000 (₹ 36,35,000 - 6,00,000) x 15.29%*] 4,64,052 Amount of interest to be capitalized 5,36,052 Journal Entry for capitalizing cost and borrowing cost Date Particulars Dr. (₹) Cr. (₹) 31.3.2023 Building account Dr. 66,56,052 (Cost of building 61,20,000 + borrowing cost 5,36,052) To Bank account 66,56,052 (Being amount of cost of building and borrowing cost thereon capitalized) Working notes: (i) Computation of average accumulated expenses Particulars ₹ 12,00,000 x 11 / 12 11,00,000 15,00,000 x 9 / 12 11,25,000 27,00,000 x 6 / 12 13,50,000 7,20,000 x 1/12 60,000 36,35,000 (ii) Calculation of average interest rate other than for specific borrowings Amount of loan (₹) Rate of interest Amount of interest (₹) 30,00,000 14% 4,20,000 54,00,000 16% 8,64,000 84,00,000 12,84,000 Weighted average rate of interest (12,84,000 / 84,00,000 × 100) 15.29%* (Rounded off) * In calculating the present value of the of minimum lease payments, the discount rate is the interest rate implicit in the lease.