Borrowing Costs

Question 1

Interest and other costs that an entity incurs in connection with borrowing of funds which forms part of the cost of the related asset (qualifying assets)

Answer 1

Borrowing Costs

Question 2

Necessarily takes a substantial period of time to get ready for the intended use or sale

Answer 2

Qualifying Assets

Question 3

Inclusions as scope of borrowing costs

Answer 3

a. Interest expense on financial liabilities or lease liabilities computed using the effective interest method.
b. Exchange differences on foreign borrowings that are regarded as an adjustment to interest costs.

Question 4

Exclusions as scope of borrowing costs

Answer 4

Actual or imputed cost of equity capital

Question 5

Recognition of Borrowing Costs

Answer 5

Directly attributable to the acquisition, construction or production of qualifying assets are CAPITALIZED as cost of the asset. Otherwise, borrowing costs are EXPENSED when incurred.

Question 6

Borrowing costs commence when all of the following three conditions are present:

Answer 6

a. incurs expenditures for the asset
b. incurs borrowing costs
c. undertakes activities that are necessary to prepare the asset for the intended use or sale.

Question 7

What happen to borrowing costs during extended period in which active development is interrupted.

Answer 7

Suspended

Question 8

What happen to borrowing costs when substantially all the activities necessary to prepare the qualifying for its intended use or sales are complete.

Answer 8

Cease

Question 9

Refers to funds borrowed specifically for the purpose of obtaining a qualifying assets

Answer 9

Specific Borrowings

Question 10

Formula of Specific borrowings

Answer 10

Capitalized borrowing costs= Actual borrowing costs-investment income

Question 11

Obtained for more than one purpose other than construction or acquisition of qualifying assets.

Answer 11

General Borrowings

Question 12

Formula of General borrowings

Answer 12

Capitalized borrowing costs= Lower amount between actual borrowing costs and maximum borrowing costs

Question 13

Computation on Maximum Borrowing Costs

Answer 13

Maximum Borrowing Costs = Average expenditures * Capitalization rate

Question 14

Computation on Capitalization Rate

Answer 14

Capitalization Rate = Total interest expense on general borrowings / Total general borrowings

Question 15

This method is simple the combination of Specific and General Borrowings

Answer 15

Average accumulated expenditure method (traditional method)

Question 16

Solution Guide on Average accumulated expenditure method (traditional method)

Answer 16

Specific Borrowings (actual bc - investment income)
General Borrowings (lower amount between actual and maximum bc)
= Capitalized Borrowing Costs

Max. BC
Ave. expenditures (total expenditure)
Less: Specific Borrowing
= Ave. expenditures financed by general borrowing
* Capitalization rate
= Maximum Borrowing Costs

Question 17

This method is similar to tradition method except that expenditures are allocated first to specific borrowing and the excess is allocated to general borrowings. Only expenditure allocated to general borrowings are averaged

Answer 17

Avoidable interest method

Question 18

Solution Guide on Avoidable interest method

Answer 18

Specific Borrowings (actual bc - investment income)
General Borrowings (lower amount between actual and maximum bc)
= Capitalized Borrowing Costs

Max BC
Average expenditures (expenditures allocated to general borrowings only)
* capitalization rate
= Maximum Borrowing Costs

Question 19

Entity shall disclose the following in relation to borrowing costs:

Answer 19

a. the amount of borrowing costs capitalized during the period
b. The capitalization rate used to determine the amount of borrowing cost eligible for capitalization.