Borrowing Costs Flashcards

1
Q

What are borrowing costs?

A

Interest and other costs that a entity incurs in connection with borrowing of funds

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2
Q

What legislation deals with Borrowing costs?

A

IAS 23

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3
Q

What are the things that need to be considered when financially accounting for borrowing costs?

A
  • recognition
  • Measurement
  • Disclosure
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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
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5
Q

What are the deferred Tax consequences of borrowing costs?

A

Normally there will be a temporary difference

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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
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