Hello, need help with this question Which of the following would be qualify as a borrowing cost as defined in IAS 23 Borrowing costs?
1) Premium on redemption of preference share capital 2) Discount in the issue of convertible debt 3) Interest expense calculated using the effective interest rate 4) Finance charges related to finance lease
A. 1, 2 and 3 only B. 2, 3 and 4 only C. 1 and 4 only D. All four
Anwser given is D, but I dont understand how no1 is borrowing cost? Or is it not?
dear sir, please help me with the exercise. i saw your video but i don’t know how to solve it Imperia Ltd has several loans as follows: + The loan is worth $ 1,600,000 from 1/1 / N to 31/12 / N, interest rate of 7% / year. + The loan is worth $ 2,000,000 from 1/1 / N to 31/12 / N + 1, interest rate of 8% / year. + A loan of $ 2,500,000 from 1/1 / N + 2 to 31/12 / N + 2, interest rate of 10% / year. The company intends to use these loans to invest in the construction of a factory with an estimated cost of approximately $ 3,800,000, construction period of 24 months, expected to start from 1/6 / N. Due to unfavorable weather, construction work was delayed to 1/8 / N until 1/8 / N + 2, the production plant was completed and to 1/1 / N + 3 began to be commissioned. into use. The estimated residual liquidation value (after 20 years) is $ 30,000. Requirements: Please apply the relevant international financial statements standards to: a. Determining the time when borrowing costs start to capitalize, the time to stop capitalization and the value of capitalization? Implementing related entries?
Questions for the example: From where do we learn that the investment discontinued in Nov, Dec, or even in the first two months 2019? The question only says that the work stopped at Nov 1?
We cannot capitalise the borrowing costs incurred during the prolonged period of inactivity
We shall still have to pay those borrowing costs – it’s just that they will be debited to finance charges rather than to the capital project itself
Similarly, we can only offset income earned on temporary investment of surplus funds during the same period that we are capitalising the borrowing costs. That income earned in the prolonged period of inactivity will still be earned and credited to Investment Income. But we cannot credit it to the capital project itself
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?
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.
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
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
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)
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
Hello, need help with this question Which of the following would be qualify as a borrowing cost as defined in IAS 23 Borrowing costs?
1) Premium on redemption of preference share capital
2) Discount in the issue of convertible debt
3) Interest expense calculated using the effective interest rate
4) Finance charges related to finance lease
A. 1, 2 and 3 only
B. 2, 3 and 4 only
C. 1 and 4 only
D. All four
Anwser given is D, but I dont understand how no1 is borrowing cost? Or is it not?
very helpful!
dear sir, please help me with the exercise. i saw your video but i don’t know how to solve it
Imperia Ltd has several loans as follows:
+ The loan is worth $ 1,600,000 from 1/1 / N to 31/12 / N, interest rate of 7% / year.
+ The loan is worth $ 2,000,000 from 1/1 / N to 31/12 / N + 1, interest rate of 8% / year.
+ A loan of $ 2,500,000 from 1/1 / N + 2 to 31/12 / N + 2, interest rate of 10% / year.
The company intends to use these loans to invest in the construction of a factory with an estimated cost of approximately $ 3,800,000, construction period of 24 months, expected to start from 1/6 / N. Due to unfavorable weather, construction work was delayed to 1/8 / N until 1/8 / N + 2, the production plant was completed and to 1/1 / N + 3 began to be commissioned. into use. The estimated residual liquidation value (after 20 years) is $ 30,000.
Requirements: Please apply the relevant international financial statements standards to:
a. Determining the time when borrowing costs start to capitalize, the time to stop capitalization and the value of capitalization? Implementing related entries?
Questions for the example: From where do we learn that the investment discontinued in Nov, Dec, or even in the first two months 2019? The question only says that the work stopped at Nov 1?
It’s the application of the matching principle
We cannot capitalise the borrowing costs incurred during the prolonged period of inactivity
We shall still have to pay those borrowing costs – it’s just that they will be debited to finance charges rather than to the capital project itself
Similarly, we can only offset income earned on temporary investment of surplus funds during the same period that we are capitalising the borrowing costs. That income earned in the prolonged period of inactivity will still be earned and credited to Investment Income. But we cannot credit it to the capital project itself
OK?
understood. Thanks alot!
You’re welcome
It hard to understand the lecture
Dear Sir,
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?
No, the contract price is the amount that will be received upon completion and sale of the stadium
Thank you sir. 馃檪
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.
Very simply – it’s the application of the matching concept (F3 lectures!)
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
thank you
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?
I get $375,000 for X
750,000 for Y
And I want know that settle investment income
Thanks
And what does the printed solution tell us?
Dear sir,
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
Thank you
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)
Ghaith, I believe that you are incorrect!
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
figures in $000 btw
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
Why no investments for that period …did he remove the funds from the investment?
Which period?