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is borrowing costs measured at amortised cost?
for gov grants, there are two types. grants related of assets and grants related to income. what are the differences.
i think grantes related to assets are that there is a primary condition set by the goverment. i.e build offices but cannot be xxx sq ft tall, or cannot exceed more than £££. grant recieved should match with costs related. i.e dep is spread over the years so not consistent.
dont know about grants related to incime, read the standard but couldnt understand it.
The grant related to assets gives you an obligation to buy or build PPE for this money, eg. a company receives a grant to build a machinery park, so the grant covers the costs of building the machinery – the costs are capitalized on PPE, as in the case of regular machinery, bought/built from own money.
The second type of grant, as far as I understand it, allows to cover the operating costs, eg. a company receives a grant to hire 20 new employees and pay them remuneration for 1 year. Or a company receives a grant to organize a marketing campaign abroad etc. The specification of the costs that can be covered will be included in the agreement between the company the government. Usually there is a list of costs which can be qualified as covered from grant.Ok, I checked this again in ias20 – the income-related grants are called so, because when you receive them, you recognize them in P&L (as the costs you covered with them are recognized in P&L), while the assets-related grants are recognized in balance sheet, because they concern assets. There are two ways of presenting the assets-related grants:
1) as deferred income – then you recognise the income at the same time, when you depreciate the asset which is granted
2) as deduction in the carrying value of the assetyour first post that you posted i understand, but i dont for the second part. what costs? can you give me some examples?
i think your first answer makes sence than the second one.
if its for a an ASSET there are 2 ways in which we can treat it
1.Deduct the grant from asset
2.deffer the income over the life of the asset. eg(grant 10m and life of asset is also 10 years.Than recognise 1m every year in profit and loss.The 2nd method is preffered now.
but if its income related we a have to recognise on the period on which conditions will be met. but if conditions are already met than recognise it in p & l
conditions may be to increase employment to a certain level if its already achieved than income will be straight forwardly recognised.
so we have to match the income against the costs. as set in the conditions?
so lets say for example, the conditions are to increase employment, we will need to match their salaries against sales?
No, we need to match the grant against the increase in the number of people employed
see for borrowing ias 23, is it amortised when it is assocaited with an asset? and if its a loan for lets say a purchase of inventory, rhen we don not amortise it?
There is a fundamental difference in a grant for a tangible non-current asset and a grant to subsidise the cost of inventory. If the grant to subsidise inventory were applicable up to an inventory value of $XXXX, then you would spread the grant over the period of time that it took to acquire that inventory, allocated on a “cost of inventory” basis.
A grant against a tangible non-current asset will be treated in either of the two acceptable ways the effect of which is to spread the benefit of the grant over the estimated useful life of the asset in question
ok?
Borrowing costs bear no relationship to grants and you’re certainly not talking about borrowing costs in the context of buying inventory. Or are you?
Inventory cannot be classified as a “qualifying asset”
Please, Karen, tell me that you’re not wasting my time by expecting me to answer silly questions!
If you borrow money to pay for the entrance fee to get into a night-club, will you amortise the borrowing cost of the interest charged over the number of hours you spend in the club? (That is an equally stupid question to rank alongside your question of borrowing to purchase inventory)
Please, think BEFORE you post
🙂
so borrowing costs is classified as qualifying assets and are capitalised ? just the like PPE ias 16?
No, borrowing costs are not qualifying assets! Borrowing costs are borrowing costs. They are the costs of borrowing money to spend on a qualifying asset for a qualifying purpose and, if they satisfy the criteria, then they MUST be capitalised as an addition to the qualifying asset. And then they are depreciated at the same rate and over the same time period as the qualifying asset.
Karen, why do you not read the course notes? Whatever you may need for the exam with reference to borrowing costs is in those notes
sorry i left my books in the house and came up with a question on borrowing costs and internet has blocked me from iasplus sites in this library.
well i doubt i can pass this exam, can only try. have soo much to learn. not easy doing two exams.
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