Borrowing Costs Flashcards
What are borrowing costs
They comprise of interest and other costs incurred in connection with borrowing of funds for a self-constructed asset
Treatment of borrowing costs
If the costs meet the conditions of a qualifying asset, IAS 23 requires them to be capitalised as part of the cost of the qualifying asset
Define qualifying asset
An asset that necessarily takes a substantial period of time to be ready for its intended use or sale
How must do we capitalise for borrowing costs?
The amount depends on whether funds are borrowed specifically or as part of general borrowings
Specific borrowings
Capitalise actual interest incurred during the period of construction
LESS investment income on temporary investment of the funds
General borrowings
Weighted average of interest outstanding during the period
When to commence capitalisation
BAE
Borrowing costs are being incurred
Activities to prepare for its intended use/sale are in progress
Expenditures for the asset are being incurred
When to suspend capitalisation
During periods when development is interrupted (strikes, bad weather)
When to cease capitalisation
When substantially all the activities are complete. You now expense subsequent borrowings to the P and L
