Borrowing Costs PAS 23 - PAS 23 PDF

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Summary

PAS 23 BORROWING COSTS Applies to QUALIFYING ASSETS, thus part of the cost of the asset (inventories or PPE, or other assets) Qualifying Assets assets that requires substantial period of time to get ready for its intended use or sale. Borrowing Costs are interest and other costs that an entity incur...

Description

PAS 23 – BORROWING COSTS 

Applies to QUALIFYING ASSETS, thus part of the cost of the asset (inventories or PPE, or other assets)

Qualifying Assets – assets that requires substantial period of time to get ready for its intended use or sale. Borrowing Costs – are interest and other costs that an entity incurs in connection with the borrowing of funds. The following are not qualifying assets:    

Those which are measured at fair value, ex. Biological assets; Manufactured, or otherwise produced, in large quantities on a repetitive basis. Financial assets, and inventories that are manufactured, or otherwise produced, over a short period of time; Assets that are ready for their intended use or sale when acquired.

The following are qualifying assets, depending on the circumstances:     

Inventories; Manufacturing plants; Power generation facilities; Intangible assets Investment properties

RECOGNITION    

Directly attributable to the acquisition, construction or production of a qualifying asset; Probable that will result to the economic benefits; Cost can be measured reliably Would have been avoided when qualifying asset have not been made;

Assets financed by specific borrowing 

Actual borrowing costs less investment income on temporary investment;

Assets financed by general borrowings    

Borrowing Costs = average expenditures x capitalization rate; Capitalization rate = borrowing cost/ principal of all borrowings; The borrowing costs shall not exceed the actual borrowing cost, otherwise, the excess shall be recorded as interest expense; The investment income shall not be deducted from the borrowing costs.

Assets financed by general and specific borrowings 

Compute for the average expenditures, then average expenditures minus specific borrowings then compute the capitalizable borrowing cost (the sum of general and specific borrowings)

Commencement of the Capitalization 

It incurs expenditure for the asset;

 

It incurs borrowing costs; It undertakes activities that are necessary to prepare the asset for its intended sale or use, but excluding those when no production or development that changes the asset conditions is taking place.

Suspension of Capitalization   

Suspends active development of qualifying asset; Not suspended when it carries out substantial technical, and administrative work; Not suspended when a temporary delay is a necessary part of the process of getting the asset ready for its intended use or sale.

Cessation of Capitalization   

Cease when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete; Regardless routine administrative work might still continue; Regardless of minor modifications;

Disclosure:  

Capitalizable borrowing cost Capitalization rate used....