Borrowing Costs Flashcards
Borrowing costs can be capitalized as cost of the asset when
a. The asset is a qualifying asset.
b. The asset is a qualifying asset and it is not probable that the borrowing costs will result in future benefits.
c. The asset is a qualifying asset and it is probable that the borrowing costs will result in future economic benefits to the entity but the costs cannot be measured reliably.
d. The asset is a qualifying asset and it is probable that the borrowing costs will result in future economic benefits to the entity and the costs can be measured reliably.
d. The asset is a qualifying asset and it is probable that the borrowing costs will result in future economic benefits to the entity and the costs can be measured reliably.
If the qualifying asset is financed by specific borrowing, the capitalizable borrowing cost is equal to
a. Actual borrowing cost incurred
b. Actual borrowing cost incurred up to completion of asset
c. Actual borrowing cost incurred up to completion of asset minus any investment income from the borrowing
d. Zero
c. Actual borrowing cost incurred up to completion of asset minus any investment income from the borrowing
Which could be treated as qualifying asset?
a. Investment property
b. Investment in financial instrument
c. Inventory that is manufactured or produced in large quantity on a repetitive basis
d. Biological asset
a. Investment property
Which is not a condition that must be satisfied before interest capitalization can begin on a qualifying asset?
a. Interest is being incurred.
b. Expenditures for the asset have been made.
c. The interest rate is equal to or greater than the cost of capital
d. Activities necessary to get the asset ready. for the intended use are in progress.
c. The interest rate is equal to or greater than the cost of capital
The period of time during which interest must be capitalized ends when
a. The asset is substantially complete and ready for the intended use.
b. No further interest is being incurred.
c. The asset is abandoned, sold or fully depreciated.
d. The activities that are necessary to get the asset ready for the intended use have begun.
a. The asset is substantially complete and ready for the intended use.
Which is not a disclosure requirement in relation to borrowing cost?
a. Accounting policy adopted for borrowing cost
b. Amount of borrowing cost capitalized during the period
c. Segregation of qualifying asset from other assets
d. Capitalization rate used to determine the amount of borrowing cost eligible for capitalization
c. Segregation of qualifying asset from other assets
Which is not be considered a qualifying asset?
a. A power generation plant that normally takes two years to construct.
b. An expensive private jet that can be purchased from a local manufacturer.
C. A toll bridge that usually takes more than a year to build.
d. A ship that normally takes one to two years to complete.
b. An expensive private jet that can be purchased from a local manufacturer.
Assets that qualify for interest capitalization include
a. Asset under construction for an entity’s use.
b. Asset that is ready for the intended use.
c. Asset that is not currently being used.
d. All of these assets qualify for interest capitalization.
d. All of these assets qualify for interest capitalization.
Which cost may not be capitalized?
a. Interest on bonds issued to finance construction.
b. Amortization of discount or premium relating to borrowings that qualify for capitalization.
c. Imputed cost of equity.
d. Exchange difference arising from foreign currency borrowing regarded as an adjustment to interest cost pertaining to a qualifying asset.
c. Imputed cost of equity.
An entity can commence capitalization of borrowing cost on a new construction project when
a. Loan interest relating to the project starts to be incurred.
b. Technical site planning commences.
c. Expenditures on the project start to be incurred.
d. Construction work commences.
c. Expenditures on the project start to be incurred.
