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HI
what i understand is that every interest on a loan capital has been taken care by the cost capital we are using to discount the investment
so there will be no need for you to consider interest again.Mikel
My qes. is why are are borrowing cost for those assets are not capitalizedQuote:Borrowing costs cannot be capitalized for assets measured at fair value.THANK YOU
HI mike is june 2010 que. uk PLEASE READ THE LAST STATEMENT
Quote:a) Where borrowing costs are directly incurred on a ‘qualifying asset’, they must be capitalised as part of the cost of that asset.
A qualifying asset may be a tangible or an intangible asset that takes a substantial period of time to get ready for its intended
use or eventual sale. Property construction would be a typical example, but it can also be applied to intangible assets during
their development period. Borrowing costs include interest based on its effective rate (which incorporates the amortisation of
discounts, premiums and certain expenses) on overdrafts, loans and (some) other fi nancial instruments and fi nance charges
on fi nance leased assets. They may be based on specifi cally borrowed funds or on the weighted average cost of a pool of funds.
Any income earned from the temporary investment of specifi cally borrowed funds would normally be deducted from the amount
to be capitalised.
Capitalisation should commence when expenditure is being incurred on the asset, which is not necessarily from the date
funds are borrowed. Capitalisation should cease when the asset is ready for its intended use, even though the funds may stillbe incurring borrowing costs. Also capitalization should be suspended if there is a suspension of active development of the
asset.
Any borrowing costs that are not eligible for capitalization must be expended. Borrowing costs cannot be capitalized for assets
measured at fair value.please Mike i think your explanation will help a lot if you can explain in detail even with example
thank youHi
you will deduct the total from the goodwill and group earnings if only it is PROPORTIONATE METHOD
NOTE but if it is FAIR VALUE METHOD then you must apportion it between group earnings and NCIHi,
The treatment will depends on the method used
1) proportionate method
2) fair value or full goodwill method
,with reference to your example given it is is full goodwill method in this case you can deduct the total from the full goodwill or you can apportion it on their %age of share holding and also deduct parent’s portion only from group retain earning and NCI %age from NCI share of earning
Example
P acquired 80% of S when the net assets of S at acquisition were $1000 and cost of investment was $1500. Goodwill was impaired by $100. The fair value of NCI at that date were $500.SOLUTION
GOODWILL
cost of investment 1500
P’s share of net asset @ acquisition(80%* 1000) (800)
goodwill for P’s 700
NCI FV @ acquisition 500
NCI share of net asset @ acquisition(20%*1000 (200) 300
full goodwill b/4 impairment 1000
less impairment 100GROUP EARNINGS
P’s profit *******
P’s share of S post acquisition profit (80%) *******
less impairment (80%*100) $80NCI
NCI’s share of S net asset @ reporting date ******
Goodwill for NCI(500-300) 200
less impairment (100* 20%) (20)CR. goodwill $100
DR group earning $80
DR NCI $20
