Topic 3: Borrowing Cost

What is the core principle of borrowing costs according to MFRS 123?

• All borrowing costs are recognized as expenses

• Borrowing costs directly related to qualifying assets are capitalized

• Borrowing costs are not considered in financial statements

• Borrowing costs are only applicable to inventories

What is considered a qualifying asset?

• An asset that is ready for immediate use or sale

• An asset that takes a substantial period of time to get ready for use or sale

• An asset that is not tangible

• An asset that is not included in financial statements

When should an entity begin capitalizing borrowing costs?

• When it incurs expenditures for the asset

• All of the above

• When construction of the asset has started

• When it incurs borrowing costs

When should an entity cease capitalizing borrowing costs?

• When the entity decides to stop

• When the construction is halfway done

• When all activities are complete

• When there is interruption in the activities

What is the purpose of determining the amount of borrowing costs eligible for capitalization?

• To increase the profit margin of the entity

• To accurately reflect the cost of the asset in financial statements

• To avoid recognizing any borrowing costs

• To reduce the overall cost of the asset

What is the significance of investment income in relation to borrowing costs?

• It is considered a separate expense

• It increases the amount of borrowing costs eligible for capitalization

• It reduces the amount of borrowing costs eligible for capitalization

• It has no impact on borrowing costs

Which of the following are types of borrowing? (You can answer more than one item)

• Alternate borrowing

• Specific borrowing

• Pool borrowing

• General borrowing

What is the capitalization rate?

• The weighted average of borrowing costs applicable to outstanding borrowings

• The average interest rate in the market

• The fixed rate set by the entity

• The prime lending rate of the central bank