Session 10 - IAS 16, 23, 40

Question 1

What is IAS 23

Answer 1

Borrowing cost

Question 2

Borrowing cost definition

Answer 2

Interest and other costs incurred in connection with the borrowing of funds

Question 3

Examples of borrowing costs

Answer 3

Bank over draft
Discounts and premiums relating to borrowings
Loan arrangements ancillary costs

Question 4

When should capitalisation begin

Answer 4

When expenditure is being incurred on the asset

Question 5

When should capitalisation be suspended

Answer 5

When work on the asset is suspended, then this cost should be expensed to the p and l

Question 6

Interest earned on investment of unitised funds should be

Answer 6

Offset against borrowing cost

Question 7

Disclosure requirements for IAS 23

Answer 7

Amount of borrowing cost capitalised should be disclosed

The capitalisation rate used to calculate the amount of general borrowing costs that are eligible for capitalisation

Question 8

Difference between FRS 102 AND IAS 23

Answer 8

Theres a choice between capitalising or expensing borrowing costs to the SOPL. Whatever chosen must be used consistently

Question 9

What is IAS 40

Answer 9

Investment property

Question 10

Investment property is

Answer 10

• Property (land, a building, part of a building or both) held….. to earn rentals, or for capital appreciation, or both rather than
o for use in the production or supply of goods & services
o for administrative purposes
o for sale in the ordinary course of business

Question 11

Examples of investment Property

Answer 11

• Land held for long term capital appreciation
• Land held for currently undetermined future use
• Building leased out under one or more operating leases
• Building currently vacant but which may be leased out under an operating lease
• Property that is being constructed or developed for future use as an investment property

Question 12

Exclusions of investment property

Answer 12

Exclusions
• Inventory (IAS 2)
• Construction contracts undertaken for clients (IFRS 15)
• Owner occupied property, or property held for future use by the owner (IAS 16)
• Property leased to another entity under a finance lease (IFRS 16)

Question 13

Cost Model for Investment property

Answer 13

The cost of the asset as defined under IAS 16, less any accumulated depreciation and any accumulated impairment losses
• An entity which chooses the fair value model, may apply the cost model should it not be possible to determine the fair value of a specific property

Question 14

Fair Value Model

Answer 14

• Fair value “ the amount for which an asset could be exchanged between knowledgeable, willing parties at an arm’s length transaction”
• Any loss or gain arising on the application of the fair value should be recognised in the statement of profit or loss for the period in which it arose
• Note the difference in treatment of gains/losses under IAS 40 and IAS 16 revaluations

Question 15

Disclosure requirements

Answer 15

• Whether the entity has adopted the fair value model or the cost model for investment property
• If fair value model is used, the method and assumptions applied determining the fair value
• The extent to which the fair value has been determined by an independent valuer who holds a recognised and relevant professional qualification
• The amount of any rental income from an investment property and related expenses that have been recognised when calculating the entities profit or loss for the period
• If the fair value model is used, a reconciliation between the carrying amounts at the beginning and end of the accounting period, showing additions, disposals and all adjustments for the period
• If the cost model is used, a reconciliation in line with the requirements of IAS 16