IAS 23 - Borrowing Costs Flashcards
what is a qualifying asset?
an asset which takes a substantial period of time to get ready for its intended use/sale
which costs do we capitalize to the cost of a qualifying asset?
any costs directly attributable to the acquisition/construction/production of it
when will capitalization commence?
- exp is incurred on qualifying asset
- borrowing costs are incurred
- activities to prepare asset for intended use/sale are in progress
what are the two kinds of borrowings?
- general
- specific
what are general borrowings?
company has a general debt but it is not clear what is used for the asset
how do we capitalize general borrowings?
capitalization rate x total amount of borrowings spent on the asset
(limited to borrowing costs actually incurred)
how do we capitalize specific borrowings?
capitalize the actual cost incurred less any investment income earned on investing the excess/all the borrowings
when do we suspend the capitalization?
if we suspend the active development of the asset
when do we cease capitalization?
when substantially all activities necessary to prepare qualifying asset for use/sale are complete
when can we capitalize general borrowings?
once all activities to prepare the asset for use/sale are complete
what is the method for capitalizing borrowing costs?
DR Interest expense, CR Bank
DR Qualifying asset, CR Interest expense
examples of qualifying assets?
- inventory
- PPE
- intangibles
- IP
- NOT financial assets
