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August 9, 2017 at 4:26 pm
It hard to understand the lecture
December 23, 2016 at 6:24 pm
The question says that the amount which can be borrowed from the bank is 300 million but the contract price for the stadium is 350 million. Wont the contract price be included in the calculation instead of the loan amount?
December 24, 2016 at 8:18 am
No, the contract price is the amount that will be received upon completion and sale of the stadium
December 24, 2016 at 11:03 am
Thank you sir. 🙂
September 25, 2016 at 3:09 pm
Hi Mr. Mike Little,
I understood that the borrowing cost should not be capitalized where incurred during extended periods of inactivity, ie., from 1.11.03 to 31.12.03 in the above example. But what about the investment income, why is it getting stopped in the same period. Can you please help me understand this concept? Thank you.
September 25, 2016 at 4:28 pm
Very simply – it’s the application of the matching concept (F3 lectures!)
August 5, 2016 at 1:32 pm
1-1-2008 R co. borrowed $15m to finance the production of 2 assets X and Y which were expected to take a year to build.production started on 1-1-2008 and loan facility was utilized as follows,with the remaining funds invested temporarily.
DATE ASSET-X($m) ASSET-Y($m)
1-1-2008 2.5 5
1-7-2008 2.5 5
The loan rate was 10% and R co. can invest surplus funds at 8%.(ignoring compound interest) calculate the borrowing costs to be capitalized for each of the asset and the cost of each asset as on 31-12-2008
please must reply
August 5, 2016 at 5:57 pm
This looks like $400,000 borrowing costs for project X and $800,000 borrowing costs for project Y with asset values of $5,400,000 for X and $10,800,000 for project Y
Did I get it right?
August 6, 2016 at 12:18 pm
I get $375,000 for X
750,000 for Y
And I want know that settle investment income
August 6, 2016 at 2:41 pm
And what does the printed solution tell us?
December 23, 2016 at 6:31 pm
I would like to know if my calculation is correct
For Asset X
Borrowing cost would be 10% of 5 million and inventment income would be 8% of 2.5 million for 6 months which gives $400,000
therefore the asset value would be 5.4 million
For Asset Y
Borrowing cost would be 10% of 10 million and investment income would be 8% of 5 million for 6 months which gives $800,000
Therefore the asset value would be 10.8 million
August 8, 2016 at 7:21 pm
Hi my brother I think borrowing cost for (x) is 150000 $ and borrowing cost for (y) is 300000$ so a total borrowing cost for x and y equal 450000$ at 31/12/2008 so we will say cost of asset at the ending period 2008 for x equal 5150000 (5000000+150000) and for y equal 10300000 (1000000+300000)
August 8, 2016 at 9:39 pm
Ghaith, I believe that you are incorrect!
December 1, 2016 at 7:57 pm
HI I was going through this example that Khan produced but i am getting borrowing costs to be $1500 (X-500; Y-1000) and investment income to deduct is coming up to be $300 6 months investment (X-100; Y-200) but watching MIke’s answer it means im still missing something. Please assist ASAP thanks
December 1, 2016 at 8:03 pm
figures in $000 btw
December 2, 2016 at 8:32 am
If we invest $7.5m for 6 months at 8% that will yield $300,000 allocated as $100,000 for project X and $200,000 for project Y
July 12, 2016 at 6:06 pm
Why no investments for that period …did he remove the funds from the investment?
July 13, 2016 at 5:16 am
April 7, 2016 at 7:25 pm
Taking into consideration that Edigijus on 1/01/2009 completed the project from the invested funds i.e. from the 90 why has the borrowing cost of Jan to Feb been calculated ?
It doesn’t say that at all!
Here’s the question …”Edigijus spent the rest of the loan in completing the project, which was ready for final inspection by 28 February”
February 4, 2016 at 3:11 pm
Can u please clarify,the loan we are taking about, is it Long Term or Short term,
For instance,if we take a loan to acquire an asset, and the loan taken is short term, thus the finance cost incured, is it capitalised or taken as revenue expenditure.? needs
November 1, 2015 at 7:14 pm
If there is any example regarding impairment on the excess of carrying value over recoverable value (for IAS 23)?
November 2, 2015 at 8:00 am
No, and it’s never come up to my recollection. You mean that, after capitalisation of borrowing costs the carrying value is seen to exceed recoverable amount? No, no examples
September 21, 2015 at 5:56 am
Trial Balance :
Interest paid (DR) – $5000
10% loan – $80000
The loan is repayable in five years.
$8000 to income statement as Finance Cost
$80000 to B/sheet as NCL??
September 21, 2015 at 11:33 am
There appears to be a missing accrual of $3,000 interest. This depends upon the date of issue of the loan but if it’s a 10% loan of $80,000 then a full year’s charge should be $8,000 (expense in statement of profit or loss), $3,000 accrual for interest not yet paid (current liability on statement of financial position) and $80,000 long term liability (statement of financial position)
Of course, if the $3,000 unpaid interest is the difference between face value interest rate and effective interest rate, then that $3,000 will be added to the $80,000 and $83,000 will be shown as the long term liability.
It all depends on the terms of the loan and you haven’t given me enough detail for me to be specific
November 27, 2014 at 2:34 am
Say the date of borrowing the loan and the date of commencing construction is different, what is the date to be taken for start capitalization of borrowing cost?
November 27, 2014 at 10:35 am
Date of commencement of work on the contract
March 21, 2015 at 6:30 pm
if a part of a loan is not used until a date after the date of commencing construction . which date is that part capitalized?
March 21, 2015 at 8:01 pm
Have you listened to the lecture or read the course notes?
November 23, 2014 at 10:02 am
any suggestions of important past papers questions related to IAS 23??
November 8, 2014 at 12:36 pm
hi I am doing p2 and I do not understand how one deals with borrowing costs and government grants in consolidated statement of cash flows
January 22, 2014 at 12:37 pm
Dear Mike little,
Am having problem viewing the lectures, where I click to hear the lecture appears an advert clip and when I click it , it open the advert page. I even tried paper f 8 it is the same. Thanks .
January 22, 2014 at 12:40 pm
See if there’s any help given on the support page
October 19, 2013 at 1:58 pm
hi i dont understand where you got investment as 90 on 1st of april – isnt it 70 ?
October 19, 2013 at 7:36 pm
Hi – of the original 100 borrowed, there is still 20 invested as at the date the next 120 is borrowed. Of that 120, 70 is invested (so 50 is spent). When the 70 is invested, it’s added to the 20 invested brought forward and that’s where the 90 invested comes from!
January 26, 2016 at 3:54 pm
Applying the above logic, the balance in April is 90m. In end May, he spent 60m. That would leave us with a balance amount of 30m. On 31st August, he spends 20m. So should the calculation not be 30+20=50. How did we come to 90?
Do the words “withdrew” and “spend” imply the same in this question?
January 27, 2016 at 9:30 am
On 31 August, he borrows 80 of which 20 is spent immediately. That leaves 60 to invest on top of the existing investment of 30 and that gives us the 90
October 19, 2013 at 8:19 pm
got it ! Thanks
September 2, 2013 at 10:42 pm
I must say that you guys are doing an amazing job with all the material and the on lectures. However, I am facing difficulties accessing the lectures using my mobile/tablet (samsung Galaxy S4/ Note 2) and wanted to know if you are aware of fix?
I’ve tried using chrome, but still I’m not able to view the lectures (even when signed in).
April 25, 2013 at 1:36 am
Quite interesting. However what happened to the two months in 2009 for the investment income? The question asked for the CV right before the sale.
April 13, 2013 at 12:03 pm
Thank you so much for these lectures, it really made my ACCA self study more interesting and enjoyable.
I have a question in relation to borrowing cost, what happens if the borrowed finance is repaid before the project is complete, do we keep capitalising borrowed cost until the project is completed or capitalise until its repaid?
April 9, 2013 at 3:07 pm
My name is Alicia.
I don’t understand one thing, calculating the temporary investment of surplus funds of 90 mlns (from 31. August till 1.11). This was calculated for two months, which I understand as then there was a strike. But why we didn’t add another 2 months when the work resumed from 1.1 until completion 2 months later. We did it for borrowed costs why not for invested? Didn’t we earn any invested income during this time?
April 13, 2013 at 5:49 pm
Well I think that with this kind of problems it’s better trying to establish the logical sequence of events first.
So, by 1 Sep ’08 the entity has received the whole $300m loan from the bank and at the same time $90m out of this sum are temporarily invested ,in another bank I suppose, earning a 5% interest p.a.
For the whole of Sep and Oct (2 months) the borrowing costs eligible for capitalisation will be the actual borrowing costs incurred less the matching investing income, in accordance with IAS 23.
When the work resumed on 1 Jan ’09 the question states and I quote “the entity spent the rest of the loan in completing the project”, which means (remember it could not get any more money from the borrowing bank) it withdrew the $90m from the investing bank and spent them in construction; that’s is why we didn’t earn any investment income for the period 1Jan ’09 – 28 Feb ’09 : there was nothing to invest!
Yet, there is still a problem of how to treat the investment income earned in the period 1 Nov ’09 – 31 Dec ’09 i.e. the period of the workers’ strike. Should we keep on deducting this income from the the capitalised aggregate sum while at the same time there wouldn’t be any matching costs? According to IAS 23 during an extended period in which an entity suspends activities relating to the asset construction, the borrowing costs incurred should be treated as costs of holding PARTIALLY COMPLETED assets and thus would not qualify for capitalisation. I assume that this refers to the temporary investment as well but I an not certain and I would appreciate the tutor’s assistance on this.
April 25, 2013 at 1:38 am
Ok I get it. So we withdrew the investment on Jan 1. Cool.
April 5, 2013 at 12:53 pm
Though not very difficult, it will not be out of place to introduce an example where capitalisation rate is used to work out the borrowing cost.
March 27, 2013 at 12:41 pm
Hi Sir 🙂
Is such a type of qs likely to come in the exam??
I have a queation:the 20m he spent immediately on 31august what do we do with that?
March 6, 2013 at 11:19 pm
Peace be upon you.
I’m tryna watch these lectures but it keeps on popping up some error message “404 not found”.
Could you please help? My device is Asus Nexus 7″.
March 7, 2013 at 6:46 am
please check the forums for help
January 22, 2013 at 8:34 am
how come you got 90 for investment at 1.09.08?. Should it be 30-20=10?.
January 30, 2013 at 3:48 pm
hi. sorry if im wrong.
it is because he borrow 80m and only spend 20m, so we assume another 60m (80m – 20m) he invest.
That is why on 1/9 the investment is 90m (30m + 60m)
hope you understand 🙂
February 1, 2013 at 11:34 am
ya thanks i got it.I haven’t read the words correctly………
June 3, 2012 at 2:51 pm
Very good example and very clear and understandable explanations. Thank you Mike
May 15, 2012 at 12:32 pm
he so didn’t seem like the teacher in rest of the f7 lectures before this .. other lectures are interactive and more visual, here even he sounded bored 🙂 no offense!
May 10, 2012 at 5:07 pm
Thank you Open Tuition for these FREE lectures!! 🙂
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