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Myanmar Accounting Standard 23


Borrowing Costs
CONTENTS
paragraphs
CORE PRINCIPLE 1
SCOPE 24
DEINITIONS !"
RECO#NITION $2!
%orro&ing co't' ()igi*)( +or ca,ita)i'ation 1-1!
E.c('' o+ t/( carrying amount o+ t/( 0ua)i+ying a''(t o1(r r(co1(ra*)( amount 12
Comm(nc(m(nt o+ ca,ita)i'ation 1"13
Su',(n'ion o+ ca,ita)i'ation 2-21
C(''ation o+ ca,ita)i'ation 222!
DISCLOS4RE 22
Myanmar Financial Reporting Standards/MAS23
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Myanmar Accounting Standard 23 Borrowing Costs
Cor( ,rinci,)(
1 %orro&ing co't' t/at ar( dir(ct)y attri*uta*)( to t/( ac0ui'ition5 con'truction or ,roduction o+ a
0ua)i+ying a''(t +orm ,art o+ t/( co't o+ t/at a''(t6 Ot/(r *orro&ing co't' ar( r(cogni'(d a' an (.,(n'(6
Sco,(
2 An (ntity '/a)) a,,)y t/i' Standard in accounting +or *orro&ing co't'6
3 The Standard does not deal with the actual or imputed cost of equity, including preferred capital not classified as
a liability.
4 An entity is not required to apply the Standard to borrowing costs directly attributable to the acquisition,
construction or production of
!a" a qualifying asset measured at fair #alue, for e$ample a biological asset% or
!b" in#entories that are manufactured, or otherwise produced, in large quantities on a repetiti#e basis.
D(+inition'
! T/i' Standard u'(' t/( +o))o&ing t(rm' &it/ t/( m(aning' ',(ci+i(d7
Borrowing costs ar( int(r('t and ot/(r co't' t/at an (ntity incur' in conn(ction &it/ t/( *orro&ing o+
+und'6
A qualifying asset i' an a''(t t/at n(c(''ari)y ta8(' a 'u*'tantia) ,(riod o+ tim( to g(t r(ady +or it'
int(nd(d u'( or 'a)(6
& Borrowing costs may include
!a" interest e$pense calculated using the effecti#e interest method as described in 'AS 3( Financial
Instruments: Recognition and Measurement%
!b" )deleted*
!c" )deleted*
!d" finance charges in respect of finance leases recognised in accordance with 'AS +, Leases% and
!e" e$change differences arising from foreign currency borrowings to the e$tent that they are regarded as
an ad-ustment to interest costs.
, .epending on the circumstances, any of the following may be qualifying assets
!a" in#entories
!b" manufacturing plants
!c" power generation facilities
!d" intangible assets
!e" in#estment properties.
/inancial assets, and in#entories that are manufactured, or otherwise produced, o#er a short period of time, are
not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.
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R(cognition
$ An (ntity '/a)) ca,ita)i'( *orro&ing co't' t/at ar( dir(ct)y attri*uta*)( to t/( ac0ui'ition5 con'truction or
,roduction o+ a 0ua)i+ying a''(t a' ,art o+ t/( co't o+ t/at a''(t6 An (ntity '/a)) r(cogni'( ot/(r *orro&ing
co't' a' an (.,(n'( in t/( ,(riod in &/ic/ it incur' t/(m6
( Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset
are included in the cost of that asset. Such borrowing costs are capitalised as part of the cost of the asset when it
is probable that they will result in future economic benefits to the entity and the costs can be measured reliably.
0hen an entity applies 'AS 1( Financial Reporting in Hyperinflationary Economies, it recognises as an
e$pense the part of borrowing costs that compensates for inflation during the same period in accordance with
paragraph 1+ of that Standard.
%orro&ing co't' ()igi*)( +or ca,ita)i'ation
+2 The borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying
asset are those borrowing costs that would ha#e been a#oided if the e$penditure on the qualifying asset had not
been made. 0hen an entity borrows funds specifically for the purpose of obtaining a particular qualifying asset,
the borrowing costs that directly relate to that qualifying asset can be readily identified.
++ 3t may be difficult to identify a direct relationship between particular borrowings and a qualifying asset and to
determine the borrowings that could otherwise ha#e been a#oided. Such a difficulty occurs, for e$ample, when
the financing acti#ity of an entity is co4ordinated centrally. .ifficulties also arise when a group uses a range of
debt instruments to borrow funds at #arying rates of interest, and lends those funds on #arious bases to other
entities in the group. 5ther complications arise through the use of loans denominated in or lin6ed to foreign
currencies, when the group operates in highly inflationary economies, and from fluctuations in e$change rates.
As a result, the determination of the amount of borrowing costs that are directly attributable to the acquisition of
a qualifying asset is difficult and the e$ercise of -udgement is required.
12 To t/( (.t(nt t/at an (ntity *orro&' +und' ',(ci+ica))y +or t/( ,ur,o'( o+ o*taining a 0ua)i+ying a''(t5 t/(
(ntity '/a)) d(t(rmin( t/( amount o+ *orro&ing co't' ()igi*)( +or ca,ita)i'ation a' t/( actua) *orro&ing
co't' incurr(d on t/at *orro&ing during t/( ,(riod )('' any in1('tm(nt incom( on t/( t(m,orary
in1('tm(nt o+ t/o'( *orro&ing'6
+3 The financing arrangements for a qualifying asset may result in an entity obtaining borrowed funds and
incurring associated borrowing costs before some or all of the funds are used for e$penditures on the qualifying
asset. 3n such circumstances, the funds are often temporarily in#ested pending their e$penditure on the
qualifying asset. 3n determining the amount of borrowing costs eligible for capitalisation during a period, any
in#estment income earned on such funds is deducted from the borrowing costs incurred.
14 To t/( (.t(nt t/at an (ntity *orro&' +und' g(n(ra))y and u'(' t/(m +or t/( ,ur,o'( o+ o*taining a
0ua)i+ying a''(t5 t/( (ntity '/a)) d(t(rmin( t/( amount o+ *orro&ing co't' ()igi*)( +or ca,ita)i'ation *y
a,,)ying a ca,ita)i'ation rat( to t/( (.,(nditur(' on t/at a''(t6 T/( ca,ita)i'ation rat( '/a)) *( t/(
&(ig/t(d a1(rag( o+ t/( *orro&ing co't' a,,)ica*)( to t/( *orro&ing' o+ t/( (ntity t/at ar( out'tanding
during t/( ,(riod5 ot/(r t/an *orro&ing' mad( ',(ci+ica))y +or t/( ,ur,o'( o+ o*taining a 0ua)i+ying
a''(t6 T/( amount o+ *orro&ing co't' t/at an (ntity ca,ita)i'(' during a ,(riod '/a)) not (.c((d t/(
amount o+ *orro&ing co't' it incurr(d during t/at ,(riod6
+7 3n some circumstances, it is appropriate to include all borrowings of the parent and its subsidiaries when
computing a weighted a#erage of the borrowing costs% in other circumstances, it is appropriate for each
subsidiary to use a weighted a#erage of the borrowing costs applicable to its own borrowings.
E.c('' o+ t/( carrying amount o+ t/( 0ua)i+ying a''(t o1(r r(co1(ra*)(
amount
+& 0hen the carrying amount or the e$pected ultimate cost of the qualifying asset e$ceeds its reco#erable amount
or net realisable #alue, the carrying amount is written down or written off in accordance with the requirements
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of other Standards. 3n certain circumstances, the amount of the write4down or write4off is written bac6 in
accordance with those other Standards.
Comm(nc(m(nt o+ ca,ita)i'ation
1" An (ntity '/a)) *(gin ca,ita)i'ing *orro&ing co't' a' ,art o+ t/( co't o+ a 0ua)i+ying a''(t on t/(
comm(nc(m(nt dat(6 T/( comm(nc(m(nt dat( +or ca,ita)i'ation i' t/( dat( &/(n t/( (ntity +ir't m((t' a))
o+ t/( +o))o&ing condition'7
9a: it incur' (.,(nditur(' +or t/( a''(t;
9*: it incur' *orro&ing co't'; and
9c: it und(rta8(' acti1iti(' t/at ar( n(c(''ary to ,r(,ar( t/( a''(t +or it' int(nd(d u'( or 'a)(6
+8 9$penditures on a qualifying asset include only those e$penditures that ha#e resulted in payments of cash,
transfers of other assets or the assumption of interest4bearing liabilities. 9$penditures are reduced by any
progress payments recei#ed and grants recei#ed in connection with the asset !see 'AS 12 Accounting for
Government Grants and Disclosure of Government Assistance". The a#erage carrying amount of the asset during
a period, including borrowing costs pre#iously capitalised, is normally a reasonable appro$imation of the
e$penditures to which the capitalisation rate is applied in that period.
+( The acti#ities necessary to prepare the asset for its intended use or sale encompass more than the physical
construction of the asset. They include technical and administrati#e wor6 prior to the commencement of
physical construction, such as the acti#ities associated with obtaining permits prior to the commencement of the
physical construction. :owe#er, such acti#ities e$clude the holding of an asset when no production or
de#elopment that changes the asset;s condition is ta6ing place. /or e$ample, borrowing costs incurred while
land is under de#elopment are capitalised during the period in which acti#ities related to the de#elopment are
being underta6en. :owe#er, borrowing costs incurred while land acquired for building purposes is held without
any associated de#elopment acti#ity do not qualify for capitalisation.
Su',(n'ion o+ ca,ita)i'ation
2- An (ntity '/a)) 'u',(nd ca,ita)i'ation o+ *orro&ing co't' during (.t(nd(d ,(riod' in &/ic/ it 'u',(nd'
acti1( d(1()o,m(nt o+ a 0ua)i+ying a''(t6
1+ An entity may incur borrowing costs during an e$tended period in which it suspends the acti#ities necessary to
prepare an asset for its intended use or sale. Such costs are costs of holding partially completed assets and do not
qualify for capitalisation. :owe#er, an entity does not normally suspend capitalising borrowing costs during a
period when it carries out substantial technical and administrati#e wor6. An entity also does not suspend
capitalising borrowing costs when a temporary delay is a necessary part of the process of getting an asset ready
for its intended use or sale. /or e$ample, capitalisation continues during the e$tended period that high water
le#els delay construction of a bridge, if such high water le#els are common during the construction period in the
geographical region in#ol#ed.
C(''ation o+ ca,ita)i'ation
22 An (ntity '/a)) c(a'( ca,ita)i'ing *orro&ing co't' &/(n 'u*'tantia))y a)) t/( acti1iti(' n(c(''ary to ,r(,ar(
t/( 0ua)i+ying a''(t +or it' int(nd(d u'( or 'a)( ar( com,)(t(6
13 An asset is normally ready for its intended use or sale when the physical construction of the asset is complete
e#en though routine administrati#e wor6 might still continue. 3f minor modifications, such as the decoration of a
property to the purchaser;s or user;s specification, are all that are outstanding, this indicates that substantially all
the acti#ities are complete.
24 </(n an (ntity com,)(t(' t/( con'truction o+ a 0ua)i+ying a''(t in ,art' and (ac/ ,art i' ca,a*)( o+ *(ing
u'(d &/i)( con'truction continu(' on ot/(r ,art'5 t/( (ntity '/a)) c(a'( ca,ita)i'ing *orro&ing co't' &/(n
it com,)(t(' 'u*'tantia))y a)) t/( acti1iti(' n(c(''ary to ,r(,ar( t/at ,art +or it' int(nd(d u'( or 'a)(6
17 A business par6 comprising se#eral buildings, each of which can be used indi#idually, is an e$ample of a
qualifying asset for which each part is capable of being usable while construction continues on other parts. An
e$ample of a qualifying asset that needs to be complete before any part can be used is an industrial plant
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in#ol#ing se#eral processes which are carried out in sequence at different parts of the plant within the same site,
such as a steel mill.
Di'c)o'ur(
22 An (ntity '/a)) di'c)o'(7
9a: t/( amount o+ *orro&ing co't' ca,ita)i'(d during t/( ,(riod; and
9*: t/( ca,ita)i'ation rat( u'(d to d(t(rmin( t/( amount o+ *orro&ing co't' ()igi*)( +or
ca,ita)i'ation6
Myanmar Financial Reporting Standards/MAS23

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