BORROWING COSTS

Borrowing costs are interest and other costs that an entity incura in connection with the borrowing
of funds.
Borrowing costs specifically include:
Interest expense calculated using the effective interest method
Finance charges in respect of finance lenses recognized.
Exchange differences arising from foreign currency borrowings to the extent that they are regarded
as an adjustment to interest costs.
Recognition of borrowing costs
Here lies the difference between PFRS for SMEs and full PFRS in relation to the recognition of
borrowing costs.
Under PFRS for SMEs, an SME shall recognize all borrowing costs as expense of the period when
incurred.
In other words, the PFRS for SMEs does not permit capitalization of interest even if the interest is
directly attributable to the acquisition, construction or production of a qualifying asset.
Under full PFRS, borrowing costs that are directly
attributable to the acquisition, construction or production of
1 qualifying asset shall be capitalized as part of the cost of
the asset.
Borrowing costs that are not directly attributable to a qualifying asset shall be expensed when
incurred.
Disclosures
The PFRS for SMEs requires disclosure of the following:
a. Finance costs
b. Total interest expense using the effective interest method for financial liabilities that are not
measured at fair value through profit or loss.
PROPERTY, PLANT AND EQUIPMENT
The IFRS for SMES defines property, plant and equipment that:
as tangible assets
Are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes, and
Are expected to be used during more than one period.
Initial measurement
An item of property, plant and equipment shall be initially measured at cost
The cost of an item of property, plant and equipment comprises all of the following:
1 Purchase price, including legal and brokerage fees, import
duties, and nonrefundable purchase taxes
Any directly attributable cost to bringing the asset to the location and condition necessary for it to
be capable of operating in a manner intended by management.
e Initial estimate of dismantling cost and restoration cost for which the entity has a present
obligation
Subsequent measurement
The PFRS for SMEs is now amended to allow the revaluation of property, plant and equipment
Paragraph 17.5 provides that an entity shall choose either the cost model or revaluation model as an
accounting policy and shall apply that policy to an entire class of property, plant and equipment
Comparison with full PFRS
The PFRS for SMEs and full PFRS are now the same with respect to matters related to property, plant
and equipment, such as measurement, depreciation method, useful life, residual value, depreciation
of significant components, revaluation, impairment and derecognition

INVESTMENT PROPERTY
The PFRS for SMEs defines investment property as

Property (land, building or part of a building, or both) held owner or by the lessee under a finance
lease to earn rentals or for capítal appreciation or both, rather than for:
Use in the production or supply of goods or services or for administrative purposes, or
Sale in the ordinary course of business. Examples of investment property

1. A building that is rented out to independent parties under an operating lease

2 A tract of land acquired as a long-term investment
3. A building that is rented out under an operating lease and the entity provides cleaning, security
and maintenance services If the services provided by the entity are insignificant
to the lease agreement, the property is investment
property.

However, if the services are a significant part of the arrangement, for example, a hotel, the building
is property, plant and equipment,
1 A tract of land held for an undetermined future use
The PFRS for SMEs does not specify how to classify such land.
According to full PFRS, such land is classified as investment property.

Initial measurement of investment property

An SME shall measure inventment property initially at cot

The cost of a purchased investment property comprises the purchase price and any directly
attributable expenditure suc as legal and brokerage fees, property transfer tax and roth transaction
cost.

Subsequent measurement of investment property

The PFRS for SMEs provides that investment property whom fair value can be measured reliably
without undue cost de effort shall be measured at fair value at the end reporting period.
Any changes in fair value shall be recognized in profit or lo
Subsequent measurement is driven by circumstance rather than accounting policy choice.
If the fair value of the investment property can be measured reliably, the entity must use the fair
value model

If the fair value of the investment property cannot be measured reliably, the entity must use the
cost depreciation impairment model
The residual value of such property is deemed to be NIL or zero as the fair value cannot be measured
reliably without undue cost or effort on an ongoing basis. The investment property whose fair value
cannot be measured reliably on an ongoing basis is presented as
separate line item investment property carried at cost less
accumulated depreciation and impairment.

Transfer

An SME shall transfer property to or from investment property only when the property meets or
ceases to meet he definition of investment property.

Thus, if a reliable measure of fair value is no longer available for investment property using the fair
value model, the entity shall account for that investment property using the cost-depreciation-
impairment model until a reliable measure of fair value becomes available.
This is deemed a change in circumstance and not a change in accounting policy.
The carrying amount of the investment property on the date of transfer becomes the cost as a
separate item of investment property

Comparison with full PFRS

Under PFRS for SMEs, investment property is measured at fair value if the fair value can be
measured reliably without undue cost or effort on an ongoing basis.

Otherwise, the investment property is accounted for separately using the cost-depreciation-
impairment model.

If the entity follows the cost model, the fair value of the property must be disclosed.
Full PFRS allows an accounting policy choice of either fair value model or cost model.