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why it is that borrowing cost relating to assets measured at fair value can not be capitalised
Where have you read that? I’ve just checked in the BPP study text and don’t see it there.
Sorry – I don’t have a Kaplan text. Surely, during the course of constructing / developing / renovating a qualifying asset ( on which therefore borrowing costs are being incurred ) you’re not going to be valuing that asset at fair value anyway
please Mike i think your explanation will help a lot if you can explain in detail even with example
thank youBorrowing costs must be capitalised if the criteria in IAS 23 are met. During construction of a qualifying asset, money could well be borrowed. Any costs of that borrowing should be capitalised. But during construction, the asset will be being carried at cost ( maybe including a profit element under IAS on construction contracts )
I’m not clear how it could be carried at fair value ( according to you according to Kaplan ) I don’t think I have ever seen such a situation.
However, given that Borrowing Costs came up as a 10 mark question as recently as June 2010, I feel that it’s not a likely topic for June 2011. Do 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.Well, if it’s measured at fair value, how can you say “Thats the fair value of the asset. Now, let’s add some borrowing costs”!
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
And I’ve just answered it in the previous post – if it’s valued at fair value, then that’s the fair value!
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