Borrowing Costs Flashcards
1
Q
What are borrowing costs?
A
Interest and other costs that a entity incurs in connection with borrowing of funds
2
Q
What legislation deals with Borrowing costs?
A
IAS 23
3
Q
What are the things that need to be considered when financially accounting for borrowing costs?
A
- recognition
- Measurement
- Disclosure
4
Q
How do you measure the borrowing costs?
A
- Check if all of the below is met
- they are directly attributable to the acquisition, construction or production of the asset which means
> costs which could have been avoided if expenditure on the qualifying asset had not been made - that asset is a qualifying asset which is the following
> an asset that necessarily takes a substantial period of time to get ready for intended use or sale - expenditure on the asset is being incurred
- borrowing costs are being incurred
- activities that necessary to prepare the asset for its intended use or sale are being performed
- If not, expense them to profit and loss
- If yes and they arose from specific borrowing costs
- only capitalize the costs less any investment income from investing the remaining funds
- If yes and they arose from General borrowing costs
- capitalize costs but limit to the capitalize rate amount of the borrowings
> capitalization rate = weighted average rate of borrowings for period other than borrowings specifically attributable to qualifying asset - capitalize irrespective of the Recoverable amount
- suspend the capitalization if an extended period occurs in which active development is interrupted but not for the following specific events
- Substantial technical or administrative work Carried out
- temporary delay is a necessary part of the process
- brief interruptions caused by external factors
- extended period occurs for inventories to mature
- cease capitalization if substantially all the activities to prepare the asset are complete
- If the Asset is held at FV, the entity can choose to capitalize if it Mets the criteria or not
5
Q
What are the deferred Tax consequences of borrowing costs?
A
Normally there will be a temporary difference
6
Q
What disclosure is required when it comes to Borrowing costs?
A
- the amount of borrowing costs capitalized during the period
- the capitalization rate used to capital the borrowing costs, if it was used