On 1 January, a company that prepares its financial statements according to International Financial Reporting Standards (IFRS) arranged financing for the construction of a new plant. The company:
·borrowed NZ$5,000,000 at an interest rate of 8%,
·issued NZ$5,000,000 of preferred shares with a cumulative dividend rate of 6%, and
·temporarily invested NZ$2,000,000 of the loan proceeds during the first six months of construction and earned 7% on that amount
The amount of financing costs to be capitalized to the cost of the plant in the first year is closest to:
The interest costs can be capitalized, but under IFRS, any amounts earned by temporarily investing the funds are deducted from the capitalized amount. The costs related to the preferred shares cannot be capitalized.
