IAS 23 Borrowing costs

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  1. Avatar of Arthney Arthney says:
    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.

  2. Avatar of castrin196michael castrin196michael says:
    April 13, 2013 at 12:03 pm

    Dear Mike,

    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?

    Thank you

  3. Avatar of achandze achandze says:
    April 9, 2013 at 3:07 pm

    Hi,
    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?

    • Avatar of nkmile64 nkmile64 says:
      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.

  4. Avatar of eadinnu eadinnu says:
    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.

  5. Avatar of hasanali95 hasanali95 says:
    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?

  6. Avatar of ziadubai ziadubai says:
    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″.

  7. Avatar of zoya07 zoya07 says:
    January 22, 2013 at 8:34 am

    Hi,
    how come you got 90 for investment at 1.09.08?. Should it be 30-20=10?.

  8. Avatar of noldis noldis says:
    June 3, 2012 at 2:51 pm

    Very good example and very clear and understandable explanations. Thank you Mike

  9. Avatar of barzakh barzakh says:
    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!

  10. Avatar of amtl amtl says:
    May 10, 2012 at 5:07 pm

    Thank you Open Tuition for these FREE lectures!! :-)

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