IAS 23 Borrowing Costs

Small Group is constructing an office building and is capitalizing borrowing costs in accordance with IAS 23 – Borrowing Costs. The office is almost complete; the only remaining work is to install furniture. Is Big Group allowed to continue capitalizing the borrowing costs?

• YES
• NO

Which of the following is not considered a “borrowing cost” under IAS 23?

• Interest expense calculated by the effective interest method under IAS 39
• Finance charges in respect of finance leases recognised in accordance with IAS 17 Leases 
• Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs 
• Principal repayments on a loan for property, plant and equipment

Which of the following is not a “qualifying asset” under IAS 23 – Borrowing Costs?

• Mass produced inventory
• Manufacturing plants
• Made to order inventory
• Investment property

Construction of Deb and Ham’s new store began on 1 April 2009. The costs were incurred on the construction immediately. The store was completed on 1 January 2010 and brought into use following its grand opening on the 1 April 2010. Deb and Ham issued a $25m unsecured loan on 1 April 2009 to aid construction of the new store (which meets the definition of a qualifying asset per IAS 23). The loan carried an interest rate of 8% per annum and is repayable on 1 April 2012.

• $2,000
• $1,800
• $1,500
• $3,000

Capitalization of the borrowing costs:

• Shall be suspended during temporary periods of delay.
• Shall be suspended only during extended periods of delays in which active development is delayed.
• Shall never be suspended
• Shall be suspended for half the period of delay.

Investment income generated from loans taken in order to finance a qualifying asset should be:

• Deducted from borrowing costs
• Added to borrowing costs
• Added to cost of asset
• None of the above

When the building of a qualifying asset is being completed in many parts and each part can be used independently of other parts, which may still being built, then:

• Capitalization should be applied for each part separately 
• Capitalization should be applied on the eventual complete asset
• None of the above