Borrowing cost Flashcards
(12 cards)
Borrowing cost
Interest & other costs that an entity incurs in connection with the borrowing of funds
Capitalising criteria
BC must be capitalised to the cost of the asset if they are
- Directly attributable to the acquisition, construction or production of a qualifying asset
Qualifying assets
An asset that necessarily takes a substantial period of time to time to get ready for its intended use or sale
Recognition:
Capitalise cost
Capitalise cost that:
- result in future economic benefit
- Necessary in getting the asset to the condition and location required for use
Capitalisation commences when
Activities necessary to prepare the asset for its intended use or sale have began
-Borrowing costs are incurred
- Expenditure are incurred
Suspended
During extended periods during which active development is stopped
Suspended Capitalisation
The delay is for a long time and is not necessary in getting the asset ready for its intended use is not for substantial technical or administrative work
Capitalisation cease when
Substantially all activities necessary to prepare the qualifying asset for its intended use or sale are complete
Specific borrowing
Raised specifically for qualifying asset, capitalise the total borrowing cost less any investment of the cash borrowed
General borrowing
Use weighted average cost of borrowings to arrive at the amount to be capitalised
-Capitalisation rate
Specific loans: Capitalised
-All borrowing costs are capitalised
If these funds are invested prior to the date they were utilised then any investment income earned must be subtracted
Generals loans
Financed cost to be calculated:
- Expenditure incurred
(Expenditure incurred evenly /2)
- Multiplied by the capitalised rate
(Interest incurred on general borrowing during the period / weighted average total borrowing outstanding during the period)
