Facts
(a) Magnificent Inc. engaged a consulting firm to advise it on many projects that it had been planning to undertake in order to diversify its operations and enhance its public image and ratings. With this mandate, the consulting firm set out to prepare a feasibility study for the construction of a shopping mall that would house anchor tenants such as world class international designers and well known global retail chains. The consulting firm advised Magnificent Inc. that this kind of a project would do wonders to its corporate image. This shopping mall had certain distinguishing features that were unique in many respects, and it could easily win the coveted title of the most popular commercial complex in the country. Based on his advice, Magnificent Inc. began construction of the shopping mall on a huge plot of land in the heart of the city. Substantial amounts were spent on its construction. Architects from around the globe competed for the project, and the construction was entrusted to the best construction firm in the country. The construction took over two years from the date the project was launched. The total cost of construction was financed by a term loan from an international bank.
(b) The consulting firm also advised Magnificent Inc. to launch a car dealership that deals only in world renowned, expensive brand names, such as Rolls Royce and Alfa Romeo. According to the research study undertaken by the consulting firm, this would be yet another business to diversify and invest in order to enhance the corporate image of Magnificent Inc. with people who matter, as such an exclusive car dealership would cater only to the needs of the top management of multinational corporations (MNCs) operating in the country. Magnificent Inc. invested in this business by borrowing funds from major local banks. Besides the corporate guarantees Magnificent Inc. gave to the banks, they also insisted on depositing with the banks title deeds of the cars as security for the loans until the entire loan amounts remain unpaid.
Required
(a) Would the shopping mall be considered a qualifying asset under the Standard? Would the interest expense on the term loan borrowed for the construction of the shopping mall qualify as eligible borrowing costs?
(b) Would the expensive cars purchased by the car dealership be considered qualifying assets under the Standard, thereby making it possible for Magnificent Inc. to capitalize the borrowing costs, which are substantial compared to the costs of the cars? Would borrowing costs include guarantee commission paid to banks for arranging corporate guarantees in addition to interest expense on bank loans?