35) Technical - Tell me bout IAS 23.

Friday, August 28, 2009

Hint:

INTERNATIONAL ACCOUNTING STANDARD 23
BORROWING COSTS


Definition:
"Borrowing costs" are interest and other costs that an entity incurs in connection with the borrowing of funds.


Types of borrowing costs:

  • To be capitalised:
    - directly attribuatble to
    - the acquisition, construction or production
    - of a "Qualifying Asset (QA*)"
  • To be Expensed:
    - other than above

* Qualifying Assets (QA):

  • takes a substantial period of time
  • to get ready
  • for its intended use or sale

IAS 23 not applicable to:

  1. Cost of equity:
    - actual or imputed (including preferred capital not classified as a liability)
  2. A qualifying asset:
    - measured at fair value (e.g. a biological asset)
  3. Inventories:
    - that are manufactured, or otherwise produced,
    - in large quantities
    - on a repetitive basis

RULES OF CAPITALISATION:

  • Conditions:
    - it is probable
    - that costs incurred will result in future economic benefits to the entity
    - and the costs can be measured reliably
  • Commencement from date when following all conditions are met:
    - expenditures is incurred for the asset,
    - it incurres Borrowing Cost; and
    - it undertakes activities that are necessary to prepare the asset for its intended use or sale.
  • Suspension of capitalisation:
    - when active development of a QA* is suspended .
    - Suspension of active development excludes:
    - - - carying out of substantial technical and administrative work
    - - - temporary delay that is a necessary part of the development of QA*
  • Cessation of capitalisation:
    - substantially all the activities of development of QA* are complete
    - if development of QA* is in parts, then each part is treated as QA*

DISCLOSURE:

  1. The amount of borrowing costs capitalised during the period; and
  2. The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation.


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