IFRS - Are we good to go - W4 - IAS 23 Borrowing cost

How shall an entity recognise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset?

• As an equity

• As an asset

• An a liability

• As an expense

On 1 October 2011, A Co borrowed $6m for a term of one year, exclusively to finance the construction of a new piece of production equipment. The interest rate on the loan is 6% and is payable on maturity of the loan. The construction commenced on 1 November 2011 but no construction took place between 1 December 2011 to 31 January 2012 due to employees taking industrial action. The asset was available for use on 30 September 2012 having a construction cost of $6m.

What is the carrying amount of the production equipment in A Co’s statement of financial position as at 30 September 2012?

• $5,016,000

• $6,270,000

• $6,330,000

• $6,360,000

A qualifying asset is an asset that necessarily takes __________ to get ready for its intended use or sale.

• A substantial period of time

• At least 6 months

• At least 12 months

• No more than 12 months

Which of the following cannot be a qualifying asset?

• Power generation facilities

• Manufacturing plants

• Intangible assets

• Financial assets

(i) Assets that are ready for their intended use or sale when acquired are not qualifying assets.

(ii) A Co. Ltd 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. A Co. Ltd is allowed to continue capitalizing the borrowing costs?

Which statement is true?

• (i) True (ii) True

• (i) False (ii) False

• (i) True (ii) False

• (i) False (ii) True

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

• Interest expense calculated by the effective interest method under IFRS 9 - Financial Instruments

• Finance charges in respect of finance leases recognised in accordance with IFRS 16 - Lease

• 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

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

C Co., Ltd had the following bank loans outstanding during the whole of 2018:

9% loan repayable 2019 - $15 million

11% loan repayable 2022 - $24 million

C Co., Ltd began construction of a qualifying asset on 1 April 2018 and withdrew funds of $6 million on that date to fund construction. On 1 August 2018 an additional $2 million was withdrawn for the same purpose.

Calculate the borrowing costs which can be capitalised in respect of this project for the year ended 31 December 2018.

• $472,500

• $750,000

• $350,000

• $560,000