University:
Alabama State University
Course:
ACC101 | Accounting
Academic year:

2024
Views:

169

Pages:

5
Author:

Charlie M.

BORROWING COSTS Qualifying Asset is an asset that necessarily takes substantial period of time to get ready for its intended use or sale. Bearer Plants QUALIFYING ASSET Takes long period of time to produce / construct / develop. Borrowing Costs Property, Plant, and Equipment Intangible Assets Investment properties Acquisition / Construction of Qualifying Asset may be obtained through borrowing to raise funds. Inventories Cost model only Start to capitalize borrowing cost when: 1. Entity incurs expenditures for asset. 2. Entity incurs borrowing cost. 3. Undertakes activities that are necessary to prepare the asset for intended use. Suspend to capitalize borrowing cost when: 1. During extended period in which active development is interrupted. Except: a. When substantial technical and administrative work is being carried out. b. When temporary delay is necessary part of the process. Suspend to capitalize borrowing cost when: 1. Substantially all the activities necessary to prepare the Qualifying Asset is complete. Exchange difference on foreign currency borrowing that are regarded as adjustment to interest cost. Includes Financial Liabilities Interest expense Lease Liabilities PAS 23 BORROWING COSTS Actual cost of equity or capital Exclusions Imputed cost of equity or capital Are interest and other costs that an entity incurs in connection with borrowing of funds. Accounting Asset financed by Specific Borrowing Funds borrowed specifically for the purpose of obtaining qualifying asset. Asset financed by General Borrowing Funds borrowed for more than one purpose, including the purpose of obtaining qualifying asset. Asset financed by Mixed Borrowing The entity is using both Specific and General Borrowing to finance the qualifying asset. Accounting for Borrowing Cost: Asset financed by Specific Borrowing Asset financed by Capitalizable Borrowing Cost = Actual Borrowing Cost Less: Investment income Temporary investment of fund from “Specific Borrowing”. Capitalizable Borrowing Cost General Borrowing Actual Borrowing Cost Avoidable Borrowing Cost Asset financed by Mixed Borrowing Whichever is LOWER Actual Borrowing Cost > Avoidable Borrowing Cost Expensed Actual Borrowing Cost < Avoidable Borrowing Cost Ignored Capitalizable Borrowing Cost = Specific borrowing cost + General Borrowing cost NOTE! 1. Investment Income is deducted in Actual Borrowing Cost of “Specific Borrowing”. PAS 23, paragraph 26 An entity shall disclose the following: 1. The amount of borrowing cost capitalized during the period. 2. The capitalization rate used to determine the amount of borrowing cost eligible for capitalization. 2. Investment Income is not deducted in Actual Borrowing Cost of “General Borrowing”. 3. Merely holding assets for use without any associated development activity does not qualify for capitalization of cost. 4. Assets Measured at Fair Value are not Qualifying Assets 5. Financial Assets cannot be a Qualifying Asset. 6. Inventories that are mass-produced repetitively is not a Qualifying Asset. 7. Segregation of assets that are “Qualifying assets” from other assets in the Statement of Financial Position is not required to be disclosed.