PAS 23 Flashcards
What is PAS 23?
Borrowing costs
What is this?
“Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognized as an expense.”
Core principle of borrowing costs
interest and other costs incurred by an entity in connection with the borrowing of funds.
Borrowing costs
Borrowing costs are interest and other costs incurred by an entity in connection with the borrowing of funds. Borrowing costs may include:
- Interest expense on financial liabilities or lease liabilities computed using the effective interest method
- Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.
an asset that necessarily takes a substantial period of time to get ready for its intended use or sale
Qualifying asset
Depending on the circumstances, any of the following may be classified as qualifying assets:
a. Inventories
b. Manufacturing plants
c. Power generation facilities
d. Intangible assets
e. Investment properties measured under cost model
The following are not qualifying assets:
a. Financial assets, and inventories that are manufactured, or otherwise produced, over a short period of time.
b. Assets that are ready for their intended use or sale when acquired are not qualifying assets.
c. Assets that are routinely manufactured or otherwise produced in large quantities on a repetitive basis.
d. assets measured at fair value.
The capitalization of borrowing costs as part of the cost of a qualifying asset commences on the date when all of the following conditions are met:
a. The entity incurs expenditures for the asset;
b. The entity incurs borrowing costs; and
c. It undertakes activities that are necessary to prepare the asset for its intended use or sale.
True or false?
Capitalization of borrowing costs shall be not suspended during extended periods of suspension of active development of a qualifying asset.
be suspended
An entity shall cease capitalizing borrowing costs when ___________ all the activities necessary to prepare the qualifying asset for its intended use or sale are _________.
substantially
complete
Determining borrowing costs eligible for capitalization :
- Qualifying assets financed through specific borrowing
- Qualifying assets financed through General borrowing
FORMULA FOR
Qualifying assets financed through specific borrowing:
Interest expense on specific borrowing
Less: Investment income earned on specific borrowing
Borrowing cost eligible for capitalization
FORMULA FOR
Qualifying assets financed through General borrowing:
Total interest expense on general borrowings
Divide by: Total general borrowings
Capitalization rate
True or false?
The amount computed in the formula above shall not be compared with the actual borrowing costs incurred during the period. The amount to be capitalized is the higher amount.
shall be compared
lower amount
false
True or false
Qualifying assets are segregated from other assets in the financial statements.
are not segregated
They are presented as regular assets under their normal classification as provided under other standards.
Qualifying assets
refers to funds borrowed specifically for the purpose of obtaining a qualifying asset.
Specific borrowing
The capitalizable borrowing costs on specific borrowings are computed as follows:
Capitalizable BC= Actual borrowing costs - Investment income
are those obtained for more than one purpose, e.g., the acquisition or construction of a qualifying asset and some other purposes.
General borrowings
The capitalizable borrowing costs on general borrowings are computed as follows:
Capitalizable BC= Ave. Expenditure x Capitalization Rate
True or false?
The borrowing cost to be capitalized is the lower of the amount computed using the formula above and the actual borrowing costs.
True
