IAS 23 – Borrowing Costs
Objective: To prescribe the accounting treatment for borrowing costs.
Borrowing costs include:
1) Interest.
2) Discounts.
3) Premiums on borrowing.
4) Ancillary cost incurred in arrangement.
Recognition:
Two accounting models are:
1) Expense model- charge all borrowing costs to expense when incurred.
2) Capitalization model- the amount capitalized =
(average borrowing costs) X (general borrowing cost during the period)
Under capitalization model:
A. Borrowing costs directly attributable to the acquisition or construction of
"qualifying assets" but only when it's probable that these costs will results a
future economic benefits and the cost can be measured reliably.
B. All other borrowing costs are to be expensed when incurred.
A "qualifying Assets" is one that requires a substantial period of time to make it ready for its intended use or sale for example manufacturing plants.
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