## IDC

deepalipawar91
Posts: 1
Joined: Wed Mar 25, 2015 12:50 pm

### IDC

Do we charge IDC on average debt outstanding or absolute debt outstanding? Which one is more advisable and why?

edupristine
Finance Junkie
Posts: 946
Joined: Wed Apr 09, 2014 6:28 am

### IDC

Hi, IDC is calculated on weighted average expenditure during the construction timeline not the total debt outstanding. This can be explained with the help of an example:
Company "X" is constructing a branch office. The total cost of construction is estimated as \$1 million and occurs over a six month time-frame. The costs include the purchase of the office for \$800,000, and construction costs of \$100,000 per month. Company X financed the purchase of the office with debt at 6.5%, while the remaining costs of the project were financed using Company X's existing debt structure at 6.0%. IDC will be calculated as follows:
Interest for purchase on office: \$800,000*6/12*6.5%= \$26,000
Interest for construction cost: \$300,000*6/12*6%= \$7,500
Total IDC= \$33,500
Expenditure is estimated on weighted average during the construction i.e. \$300,000 and not on absolute i.e. \$600,000.