PAS 23 - Borrowing Cost

• Borrowing cost that are directly attributable to the acquisition, construction, or production of a qualifying asset are capitalized as cost of that asset.
• What do you call to the costs incurred in relation to borrowing of funds?

  Borrowing costs (interest or finance costs)
• Borrowing cost do not include actual or imputed cost of equity or capital
• What do you call to an asset that necessarily takes a substantial period of time to get ready for its intended use or sale?

  Qualifying asset
• Borrowing costs are capitalized if they are avoidable
• Capitalization of borrowing cost start when ALL of the conditions are met;

  1. expenditures for the assets are being incurred
  2. borrowing costs are being incurred; and
  3. activities necessary to prepare the asset for its intended use or sale are being undertaken
• Capitalization of borrowing cost is;

  1. SUSPENDED - during extended periods in which active development is interrupted
  2. NOT SUSPENDED - if substantial technical and administrative work is being performed or if there is a temporary delay (e.g. construction is delayed due to typhoon)
  3. CEASES - when the asset is substantially complete
• What refers to a fund borrowed specifically for the purpose of obtaining a qualifying asset?

  Specific borrowing cost
• Formula on capitalizable borrowing cost on specific borrowings;

  
  

  Capitalizable BC = Actual borrowing cost - Investment income
• General borrowing costs are those obtained for more than one purpose, e.g., the acquisition or construction of qualifying asset and some other purposes
• formula of capitalizable borrowing costs on general borrowings;

  
  

  Capitalizable BC = Ave. Expenditure * Capitalization Rate
• the borrowing cost to be capitalized is the lower of the amount computed using the formula and the actual borrowing costs
• capitalization rate = total interest expense on general borrowings/ total general borrowings
• Disclosure

  1. the amount of borrowing costs capitalized during the period
  2. the capitalization rate used to determined the capitalizable borrowing costs