chapter 13 part 2

Question 1

what are the common sources of non-Canadian financing

Answer 1

1. U.S banks
2. other financial institutions
3. for large public compnies, the bond markets

Question 2

what is exchange risk

Answer 2

borrowing from a foreign lender causes additional form of risk
- causes gains or losses when exchange rates fluctuate

Question 3

how do companies offset exchange risk

Answer 3

by hedging

Question 4

what is hedging

Answer 4

involves arranging equal and offsetting cash flows in the desired currency

Question 5

How do you account for exchange rage fluctuations with regards to debt in foreign currency

Answer 5

1. reported on the SFP at the spot rate on the reporting date
2. exchange gains or losses (unrealized) is reported in earnings in the year in which it arises

Question 6

how do you deal with interest expense on debt with foreign currency

Answer 6

annual interest is accrued using the exchange rate in effect during the period (the average exchange rate)

• when it is paid, cash outflows are measured at the exchange rate in effect on that day
• the difference between the expense and the cash paid is also an exchange gain or loss

Question 7

When do you capitalize a cost

Answer 7

any cost that is attributable to the acquisition, construction, or production of a qualifying asset forms part of the cost of that assets and is capitalized

Question 8

what are the qualifying assets for Capitalizing a cost

Answer 8

1. inventories
2. property
3. plant and equipment
4. intangible assets

Question 9

only capitalize if the assets take

Answer 9

substantial amount of time to get ready for intended use

Question 10

the choice to capitalize borrowing costs or not for inventories at fair value (biological assets) or manufactured in large quantities depends on what

Answer 10

reporting objectives and circumstance

Question 11

what do borrowing costs include

Answer 11

1. interest (using effective rate)
2. upfront fees
3. foreign currency adjustment

Question 12

when do you capitalize borrowing costs

Answer 12

1. if a specific loan in place to finance the construction - the interest costs incurred
2. if general borrowings used - determine average borrowing rate and apply to the specific expenditures made for the relevant time period

Question 13

what are the borrowing costs - define

Answer 13

borrowing costs that can be capitalized are interest and any cost an entity incurs in connection with borrowing funds

Question 14

is imputed interest on equity eligible for capitalizations

Answer 14

no

Question 15

when do you capitalize borrowing costs

Answer 15

if it would have been avoided if the acquisition was not made

Question 16

if a qualifying asset for capitalization is purchased from general borrowings rather than specific loan, the average borrowing rate is calculated

Answer 16

on the total of general borrowings, and this rate is applied to the specific expenditures made, for the time period involved

Question 17

what events will trigger the commencement of capitalization

Answer 17

1. when money is borrowed
2. a payment is made on an asset
   or
3. activities begin, to make the asset ready to use

Question 18

when does capitalization end

Answer 18

when the asset is put into use, or is ready for its intended purpose.
or if work is not progressing
- if substantially all the activities to get the asset into use are completed, then capitalization should cease