Borrowing costs

Question 1

Qualifying asset

Answer 1

An asset that necessarily takes a substantial period of time to get ready for its intended use or sale

Question 2

Examples of qualifying assets

Answer 2

Inventories
Manufacturing plants
Intangible assets
Investment properties
Bearer plants
Inventories produced under construction

Question 3

Borrowing costs

Answer 3

interest and other costs that an entity incurs in connection with the borrowing of funds

Question 4

Borrowing costs INCLUDE

Answer 4

Interest on bank overdraft; short term loans
cost of raising debt
finance charges
exchange differences arising from foreign operations

Question 5

Borrowing costs EXCLUDES

Answer 5

Actual or imputed cost of equity

e.g for preference shares, their dividends are the only ones to be capitalised

Question 6

When are borrowing costs allowed to be capitalised

Answer 6

1. expenditure are being incurred on the qualifying asset
2. borrowing costs are being incurred
3. activities to prepare for asset have begun

Question 7

When should capitalisation be suspended

Answer 7

when active development is interrupted for extended periods

unless it is a temporary suspension which is essential or unavoidable

Question 8

Measurement of borrowing costs

Answer 8

Specific loans
1.1. capitalise all costs attached to the funds

  1.2. reduced by earning from the investment of funds