Borrowing Costs

Question 1

What are borrowing costs?

Answer 1

Interest and other costs that a entity incurs in connection with borrowing of funds

Question 2

What legislation deals with Borrowing costs?

Answer 2

IAS 23

Question 3

What are the things that need to be considered when financially accounting for borrowing costs?

Answer 3

• recognition
• Measurement
• Disclosure

Question 4

How do you measure the borrowing costs?

Answer 4

• Check if all of the below is met
• they are directly attributable to the acquisition, construction or production of the asset which means
  > costs which could have been avoided if expenditure on the qualifying asset had not been made
• that asset is a qualifying asset which is the following
  > an asset that necessarily takes a substantial period of time to get ready for intended use or sale
• expenditure on the asset is being incurred
• borrowing costs are being incurred
• activities that necessary to prepare the asset for its intended use or sale are being performed
• If not, expense them to profit and loss
• If yes and they arose from specific borrowing costs
• only capitalize the costs less any investment income from investing the remaining funds
• If yes and they arose from General borrowing costs
• capitalize costs but limit to the capitalize rate amount of the borrowings
  > capitalization rate = weighted average rate of borrowings for period other than borrowings specifically attributable to qualifying asset
• capitalize irrespective of the Recoverable amount
• suspend the capitalization if an extended period occurs in which active development is interrupted but not for the following specific events
• Substantial technical or administrative work Carried out
• temporary delay is a necessary part of the process
• brief interruptions caused by external factors
• extended period occurs for inventories to mature
• cease capitalization if substantially all the activities to prepare the asset are complete
• If the Asset is held at FV, the entity can choose to capitalize if it Mets the criteria or not

Question 5

What are the deferred Tax consequences of borrowing costs?

Answer 5

Normally there will be a temporary difference

Question 6

What disclosure is required when it comes to Borrowing costs?

Answer 6

• the amount of borrowing costs capitalized during the period
• the capitalization rate used to capital the borrowing costs, if it was used