Borrowing Costs - defined as interest and other costs that an entity incurs in connection with borrowing of funds.
a. Interest expense calculated using effective interest method
b. Finace charge with respect to a finance lease
c. Foreign currency
Qualifying Asset - that necessarily takes a substantial period of time to get ready for the intended use or sale
a. Manufacturing plant
b Power generation facility
c. Intangible asset
d. Investment property
Borrowing cost can be capitalized when the asset is a qualifying asset, expensed if not.
>Specific borrowing - the amount of capitalizable borrowing cost is the actual borrowing cost incurred during the peruod less any investment income from temporary investment of those borrowings.
>General borrowing - the amount of capitalizable borrowing cost is equal to the average carrying amount of the asset multiplied by a capitalization rate or average interest rate.
-the capitalized borrowing cost shall not exceed the actual interest incurred
-average interest rate equals to the total annual borrowing cost divided by the total general borrowings outstanding during the period
-any investment income is not deducted
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Accounting
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