Group Members

M Kamran Shabbir 4458-FMS/MBA/S10

Hamid Ijaz 4536-FMS/MBA/S10

Borrowing Costs (IAS-23)

What is (IAS-23)? Borrowing cost prescribes the criteria for determining whether borrowing cost can be capitalized as a part of cost of acquiring or producing a qualifying asset

Introduction To (Borrowing Cost)

Borrowing cost are the interest and other costs that are incurred by an entity in connection with borrowing of funds.

Examples Of Borrowing Cost

Bank Over Draft
Amortization of discount

Financial Charge in respect of financial lease recognized in accordance with IAS-17 lease Exchange differences arises from foreign currency borrowing to the extent that may regarded as an adjustment to interest cost.

Introduction to Qualifying Asset

Qualifying asset is an asset that substantially takes a period of time to get ready for use or sale.

Examples of Qualifying Assets

Inventories that require substantial period of time for manufacturing
Manufacturing Plant Power generation facility

Intangible Assets
Investment in Properties

 General Borrowing (Capitalization Rate) Specific Borrowing

Calculations
General Borrowing (Capitalization Rate) =[Total Interest/Weight
of Total loan outstanding]100 Specific Borrowing Interest Paid (-)Interest Income Borrowing Cost

Borrowing Eligible For Capitalization

Qualifying asset is an essential element for the capitalization of borrowing cost. Borrowing and Funding organized Centrally

Specifically borrowing to finance a single Qualified Asset

Capitalized Borrowing cost is less than the borrowing cost incured

Suspension of Capitalization
When active development is interrupted Example; capitalization would be suspended during an interruption to the construction of a bridge during very high water levels, which are common in the area where construction is taking place. However, capitalization of borrowing costs should not be suspended when there is only a tempo-rary delay that is caused by certain expected and anticipated reasons, such as while an asset is getting ready for its intended use.

CESSATION OF CAPITALIZATION
When activity is necessary for making an asset or stopped
Asset is ready for use or sale Activities like decoration and routine administrative work do not come under the necessary activity for making an asset so asset will be considered complete Capitalization Ceases only on those parts which are complete and ready for use and the parts which are un complete borrowing cost kept on capitalizing on those parts

Disclosure
Accounting policy for the recognition of borrowing cost

The amount of borrowing cost to be capitalized

Capitalization rate all above mentioned themes are to be disclosed in the disclosure of firm and entity